Table of Contents Acronyms ...................................................................................................................................................... iii Foreword....................................................................................................................................................................v Acknowledgements ....................................................................................................................................... vi Chapter 1 Background.................................................................................................................................... 1 Chapter 2 Sector Summaries........................................................................................................................... 3 GeneralAgribusiness .............................................................................................................................. 3 Rice ......................................................................................................................................................... 3 Cashew Nuts .......................................................................................................................................... 3 Livestock ................................................................................................................................................. 4 Mangoes ................................................................................................................................................. 4 Vegetable Oils ......................................................................................................................................... 4 Palm Wine .............................................................................................................................................. 4 Rubber .................................................................................................................................................... 4 Fish ......................................................................................................................................................... 5 Silk Products ........................................................................................................................................... 5 Bamboo/RattanFurniture ..................................................................................................................... 5 Garments................................................................................................................................................ 5 FinancialServices ..................................................................................................................................... 5 Construction and Related Services .......................................................................................................... 6 Chapter3TheWTOContract ........................................................................................................................ 7 Chpater4WTOOriginandPrinciples ......................................................................................................... 11 Chapter 5 The New Regulatory Environment for Local Business ................................................................ 17 Chapter 6 The New Investment Environment ............................................................................................ 23 Chapter 7 The New Trading Environment: Opening Markets ..................................................................... 29 Chapter 8 The New Trading Environment: Dealing with Non-tariff Barriers ............................................. 35 Chapter 9 Becoming Competitive, and Dealing with the Competition........................................................ 39 Annex A1 Agribusiness: General ................................................................................................................. 43 Annex A2 Agribusiness: Rice ....................................................................................................................... 49 Annex A3 Agribusiness: Cashew Nuts ........................................................................................................ 55 Annex A4 Agribusiness: Livestock............................................................................................................... 59 Annex A5 Agribusiness: Mangoes ............................................................................................................... 63 Annex A6 Agribusiness: Vegetable Oils ....................................................................................................... 67 Annex A7 Agribusiness: Palm Wine ............................................................................................................ 71 Annex A8 Agribusiness: Rubber.................................................................................................................. 73 i Annex B Fish ................................................................................................................................................77 Annex C1 Handicrafts: Silk Products ............................................................................................................81 Annex C2 Handicrafts: Bamboo/Rattan Furniture.......................................................................................85 Annex D Garments ......................................................................................................................................89 AnnexE1FinancialServices ..........................................................................................................................95 Annex E2 Construction and Related Services ...............................................................................................99 Annex F The Experience of Another WTO Member: Uganda ...................................................................101 Appendix 1 Information Resources ............................................................................................................107 Appendix 2 Trade Promotion Support in Cambodia .................................................................................109 Appendix 3 The Role of Camcontrol .........................................................................................................111 Appendix 4 Ministry of Agriculture, Forestry and Fisheries Contacts .........................................................113 Appendix 5 Glossary of WTO Terms ........................................................................................................115 ii Acronyms AFTA ASEANFreeTradeArea AGOA AfricaGrowthandOpportunityAct ASEAN Association of South East Asian Nations ATC Agreement on Textiles and Clothing BSE Bovine Spongiform Encephalopathy Camcontrol Cambodia Import Export Inspection and Fraud Repression Division, Ministry of Commerce CAP Common Agricultural Policy CDRI Cambodian Development Resource Institute CEPT CommonEffectivePreferentialTariff c.i.f. Cost, insurance and freight C/O CertificateofOrigin COMESA Common Market of Eastern and Southern Africa EAC East African Community EBA Everything but Arms EU European Union FAOSTAT UN Food and Agriculture Organization Statistical Database FDI Foreign Direct Investment f.o.b. Free on board GATT General Agreement on Tariffs and Trade GATS General Agreement on Trade in Services GDP Gross Domestic Product GNP Gross National Product GSP GeneralizedSystemofPreferences ILO International Labour Organization INBAR International Network for Bamboo and Rattan iii IP IntellectualProperty IPR Intellectual Property Rights ITRO International Tripartite Rubber Organization LDC Least-Developed Country MAFF Ministry of Agriculture, Forestry and Fisheries MFA MultifibreArrangement MFN Most Favoured Nation MoC Ministry of Commerce NAFTA North American Free Trade Agreement NGO Non-Governmental Organization OPEC Organization of Petroleum Exporting Countries PSI Pre-shipment Inspection SGS SociétéGénéraledeSurveillance SME SmallandMedium-SizedEnterprise SPS Sanitary and Phytosanitary TBT TechnicalBarrierstoTrade TRIMs Trade Related Investment Measures TRIPS Trade Related Aspects of Intellectual Property Rights UK United Kingdom UN United Nations UN Comtrade United Nations trade database UNBS Uganda National Bureau of Standards UNCTAD United Nations Conference on Trade and Development UNEP United Nations Environment Programme US United States USDA United States Department of Agriculture VAT Value Added Tax iv Foreword Whether we like it or not, globalization is fact of life. As a result of innovations in transportation and communications and the opening up of economies world wide, the nations of the world are now irrevocably bound together. Recognizing this reality, Cambodia decided to join the World Trade Organization. Although the accession process was an ordeal, and Cambodia had to agree to terms that were beyond the norm for least developed countries, in the end we accepted the challenge. The rationale is clear ­ at home we have a rapidly growing workforce and not nearly enough jobs to employ them. Beyond our borders we have fierce and increasing competition. A thriving and competitive private sector will help in creating sustainable jobs. One of the keys to private sector growth, especially for a country of Cambodia's size and stage of development, is international trade. As two decades of economic integration have shows, countries with the highest trade to GDPratios,experiencegrowthwhichaveraged3.5%peryearinthe1980s,and5%peryearinthe1990s.Atsame time, countries that did not integrate had average GDP growth of only 0.8% in the 1980s and 1.5% in the 1990s. However for trade to be mutually beneficial, it has to be governed by a common set of principles. These must commit parties to openness, transparency, predictability, non-discrimination and rule-based dispute resolution. By joining WTO we are not only improving market access, and gaining fairer treatment from powerful trading partners around the world, but we are also sending a strong signal to potential investors that Cambodia is a good place to do business. However, WTO membership and the government reforms required are not enough on their own. Cambodia will only benefit if its businesses understand the rules of the new trading environment so that they can take advantage of new opportunities and also cope with new challenges. It is for this reason that we have collaborated with the International Finance Corporation's Mekong Private Sector Development Facility (MPDF) in preparing this Guide and in other initiatives to inform the private sector about WTO. As you will see when you read this Guide, it is organized into two main sections. The first of these presents a detailed overview of WTO rules and policies. The second part examines the probable impact that WTO membership will have on a number of different sectors. This is a very important section because it gives a broad overview of the market for each sub-sector, the challenges that Cambodian businesses will face and also provides sources for further information on each market. The Ministry of Commerce is very grateful to MPDF for its cooperation in preparing this Guide and we hope that it will prove a useful resource in helping entrepreneurs to make the most of WTO membership. Cham Prasidh Senior Minister and Minister of Commerce March2005 v Acknowledgements This Cambodia and WTO: A Guide for Businesseswas jointly produced by the Ministry of Commerce (MoC) and the Mekong Private Sector Development Facility (MPDF). H.E. Sok Siphana, Secretary of State, Ministry of Commerce and Adam Sack provided guidance and support for development of this product. Soneath Hor was principally responsible for the development of the Guide, and the work was carried out under the supervision of Trang Nguyen. David Woods, Managing Director of World Trade Agenda Consultants, was the primary author of the report. Tekreth Samrach and You Mab were involved in the researchandreviewofthedocument. Jennifer Herink and Ann Bishop edited and proofread the manuscript. Suonty You provided comments on various drafts of the Guide and helped with translation. Tia Savora translated the document, and Tea San checked translation, oversaw production and provided administrative support. Kunthea Kea was responsible for graphic design and layout. Nguyen Thi My also provided administrative support. vi vii 1 Chapter Background The Kingdom of Cambodia became a member of opportunitiesforcompetitive,entrepreneurialfirms the World Trade Organization (WTO) on October willappear.However,exportsuccesswillonlyresult 13, 2004. The terms of accession were negotiated fromaproductivepartnershipbetweengovernment with other WTO members over a period of almost and the private sector. Cambodian firms need to nineyears,andwereformallyaccepted,inSeptember identify their interests in the WTO trading system, 2003, at the WTO ministerial meeting in Cancun, and ensure that the government adequately Mexico. Ratification by the Cambodian National represents those interests in Geneva. AssemblyandapprovalbytheSenatewasreceivedin The impact of the WTO will be felt on four September 2004. levels. First, and in the relatively short term, will be By joining WTO, Cambodia gains an the implementation of commitments to reform the enforceable, contractual relationship with almost domestic regulatory and administrative framework. everyothernationsignificantlyengagedintrade.The These are the conditions under which business and WTO contract is a set of commitments and rules commerce operate within Cambodia. Second, if the that permit access to markets. This contract is regulatory and legal infrastructure improves, WTO enforced through a dispute settlement system that membership should encourage investment. Third, hasconsiderablelegalandcommercialauthority. if Cambodian firms are productive, and are capable TheWTOlegalsystemisextremelycomplex.It of delivering quality products on time and at is comprised of approximately 20 individual competitive prices, market access conditions - partly agreements, and many more decisions and those determined in the WTO, but also by regional understandings. But its principles are very simple. and preferential arrangements - will become a Theseinclude:non-discriminationamongmembers, decisive factor. Finally, the WTO offers some transparency of trade laws and regulations, special opportunities, not only for its members to become treatment for developing countries, the use of tariffs morecompetitive,but also, to cope with competition onlyforprotectingmarkets,andprogressivemarket in their own markets. liberalization. Committees and councils comprised The terms of WTO accession include of representatives of WTO members oversee all the commitments by Cambodia to move ahead with its agreements in the head office in Geneva, Switzeland. legislative reform program, including establishment of a commercial court. The regulatory environment EFFECTS OF WTOMEMBERSHIP ONTHE AMBODIAN C will be directly affected by a variety of WTO PRIVATE SECTOR agreements. For example, the rules on valuation of goods for import duty and Value Added Tax (VAT) It is important to remember that neither the by the customs department will make tax and duties advantages nor the challenges of WTO membership more predictable for importers. Similarly, the WTO are felt immediately after accession. Some substantial agreements on pre-shipment inspection (PSI) and changestookplaceduringtheaccessionprocess,while import licensing will remove concerns over the others will take place over the coming years. handling of goods at ports. Cambodia must also WTO membership does not guarantee success continue to develop its laws on intellectual property in world trade. Instead, the WTO provides a (IP) protection. framework for economic and other reforms that The attraction of Cambodia as a location for should help Cambodia be competitive in foreign investment depends on improving the regulatory markets, and, at the same time, provide an attractive and judicial environments. The WTO commitments environment for investment. Over time, new market made by Cambodia in the area of services, however, 1 Cambodia and WTO: A Guide for Business are a key to long term potential future investment. While WTO accession provides security with Thelackofaffordablecreditandotherfinancialservices, respect to ceilings on customs duties in overseas in particular, is often identified as a major handicap markets, Cambodian exporters will still have to deal for Cambodian companies. Telecommunications, with a variety of other barriers. Quotas on garments construction, business, educational, and health and textiles were eliminated at the end of 2004. In services are vital for the future of the nation; all are theagriculturesector,WTOrulesontariffquotasare subject to WTO commitments that open them to very complex, and abuse of the system is common. foreign suppliers. WTO rules also place disciplines WTOprovisionsinthisarea,asdescribedlaterinthis on the kind of investment incentives that Cambodia guide, will be important for Cambodian agri- canprovide. businesses. The WTO rules also include other non-tariff MARKETACCESS ISSUES barriers.Thoserelatedtostandards(TechnicalBarriers toTrade[TBT]andfoodsafetyregulations)andrules Cambodianexporterscanexpectgreatersecuritythan of origin will be important to Cambodian firms. before in access to overseas markets. The WTO provides ceilings, or limits, which differ widely, on WTOIMPACT ON DOMESTIC FIRMS the customs duties that its members can charge. For most industrial countries, except for the agriculture Competition in the domestic market may not and textiles sectors, these ceiling duties are very low. intensify as a direct result of WTO membership. For some of Cambodia's important developing However, many firms will feel the pressure of country markets, the WTO duties are high. competition grow as the Cambodian economy is However,lowerratesareoftenappliedattheborder. reformed and continues to open. The WTO It is important for Cambodian firms to understand recognizes that sometimes governments have to thedifferencebetweentheceilingduties,alsoreferred offerprotectiontohard-hitdomesticproducers.The to as "bound duties", and the actual applied duties. WTO provides legal protection for domestic firms, The former are enforceable in the WTO, the latter, which is applied depending on whether the for the most part, are not. competition is deemed fair or unfair. However, the As a poor country, and member of the Associa- conditions for such legal protection are strict, and the tion of South East Asian Nations (ASEAN), much rules must be applied carefully. In particular, the ofCambodia'stradeisconductedunderpreferential government must prove that imports are harming terms. Schemes like the Generalized System of domesticfirms. Preferences (GSP) and the European Union's The WTO agreements and the commitments "Everything but Arms" (EBA) initiative, which to market access that affect industrial goods, provides duty-free and quota-free access to least agricultural products and services can change. Every developedcountries(LDCs),arevaluabletoCambodia. fewyears,WTOmembersholdnewtradenegotiations; They are not, however, guaranteed in theWTOand the Doha Development Agenda is the latest. Major often subject to complicated rules of origin. changes in the competitive environment for global During the process of joining the WTO, agribusiness are expected from the Doha Round, as Cambodia reformed its own tariff structure. Those it is commonly called. A new WTO agreement on reforms, in 2001, reduced both the average level of tradefacilitation,whichaddressesimprovingexport/ import duties and the number of tariff bands, or import procedures and eliminating informal border groupings, from 12 to four. The tariff commitments charges, is also expected. made by Cambodia are either at these levels or above The Doha Round will contain other changes them. Therefore, the practical impact of actual important to Cambodian exporters, farmers, and the accessionin2004ontariffsisminimal;thecompetitive privatesectoringeneral.Itwillbenecessary,therefore, effects of tariff reform have already been felt by for the private sector to work closely with the domestic firms. Further tariff reforms are planned, government to determine negotiating priorities, and but they are not part of the WTO contract. If national topursuethemattheWTO.Forthisrelationshiptobe revenues are to not decline, due to these reduced effective, private firms will need to understand how tariffs, the problem of smuggling must be resolved. the WTO system works and how to secure benefits. 2 2 Chapter Sector Summaries The impact of the WTO on specific, potential export RICE sectors in Cambodia will vary widely. Short-term regulatory reform may be crucial to some industries, Cambodia's chances of returning to its status as a while longer-term changes in market access major rice exporter are limited. Thailand now conditions may be important to others. The annexes dominates the global market, and Vietnam is also a in this guide briefly examine opportunities created big supplier. Large quantities of Cambodian paddy by WTO membership for a representative group of rice are smuggled to Vietnam for milling and Cambodian industries. The choice of sectors is only onward export. Only one Cambodian rice mill can intendedtoprovideacross-sectionfromkeyareasof operate to export standards, and its products have the productive economy. The selection of an proved themselves in developed country markets. industry does not mean that it, more than one not With more investment in modern rice mills, selected, is likely to be successful at exporting. Cambodiacouldofferlargerquantitiesofgood-quality Below are summaries from the sector guides in specialty rice to an international market that is theannexes. growing in sophistication. This would increase international recognition that Cambodian products GENERALAGRIBUSINESS can meet high standards. The WTO has yet to bring openness and fairness to international rice markets, Cambodia possesses many agricultural assets, and but preferential arrangements like the EU's the potential for turning them into successful export "Everything but Arms" initiative are seen as ventures is considerable. For some important opening doors for the world's poorest rice products,thelossofqualityagriculturalcommodities producing nations. through smuggling is the biggest challenge. High domestic costs, poor infrastructure, administrative CASHEWNUTS inefficiencies, as well as a lack of investment in processing capacity, all discourage formal trade. The biggest development in the world cashew mar- Farmers and wholesalers often take the easiest ketoverthepastfewyearshasbeentheemergenceof option; selling to traders from neighboring markets Vietnam as the dominant producer and exporter. who are able to bear the informal costs of moving The processing capacity in Vietnam is so large that commodities out of Cambodia for processing and processors are prepared to pay high prices for raw onward sales. The regulatory reforms that WTO cashew nuts. One result is that a large part of the membershiprequires,andpreferentialmarketaccess, Cambodiancashewcropisbeingpurchasedwithcash should help. The global trading environment, and taken informally, or smuggled, across the border however, is improving only gradually under WTO with Vietnam. Prices paid by Vietnamese traders are rules. High tariff barriers, complex quota regimes, too high for the one processing company in and food safety requirements will need to be Cambodia that is capable of producing for the world understood to take advantage of new opportunities. market. Coupled with excessive domestic costs, and Agribusiness groups should look closely at the the need for informal payments to move the potential of the Doha Round to improve product to and through ports, it is difficult for conditionsfurther. Cambodian cashew production to be competitive. 3 Cambodia and WTO: A Guide for Business Yettheworldmarketforshelledcashewnutsislarge, negotiations.However,themarketcontinuestogrow and trading conditions are open. Additional as new uses emerge, related to demand for both potential lies in marketing organic cashew nuts. healthy food products and industrial derivatives to compete with petrochemicals. China is a large and LIVESTOCK growing market for vegetable oils; several ASEAN members offer relatively open market access. Various studies, and experience, suggest that there Opportunities exist for Cambodia to export more may be considerable opportunities for Cambodia to palm oil, and to replace some of its vegetable oil export livestock, notably, cattle, buffalo, pigs, and imports, if local production costs can be contained. poultry.Currently,thecattletradeisprimarilythrough smuggling.Properlyfattened,Cambodiancattlecould PALMWINE be sold into regional markets, and perhaps meet increasing demand in the Middle East. Limited Palm wine is one of many products that can be exports have been sold to Malaysia. Recently, animal generated from the sugar palm tree. One company, diseases have made global trade in livestock based near Phnom Penh, is manufacturing precarious; meeting health standards is vital. This crystallized fruit, vinegars, hats, and baskets, as well canbeachievedbydevelopingveterinaryservicesand as a range of wines and cocktails from various access to veterinary medicines. Exploiting the products of the sugar palm. Its alcoholic beverages livestock sector would also require improved access include two grades of plain palm wine (8% and 10% to competitively produced animal feed. Trade volume alcohol), a pineapple palm cocktail and a conditionsforlivestockareotherwiserelativelyopen. gingerpalmcocktail.Theseproductscouldseekniches in the sweet aperitif market. Asian markets are often MANGOES protected in favor of local alcoholic drinks, or for religiousreasons.Thereislittleprotection,however, Cambodian farmers grow a variety of high-quality in developed countries, but strict food safety fruits,manyofwhichareinhighdemandindeveloped standards must be met. Informal administrative country markets. Buyers in developed countries are charges and infrastructure shortcomings in willing to pay premium prices for fruit certified as Cambodiadamagecompetitiveness.WTOconditions organic. Demand for mangoes, for example, has will make little difference except, perhaps, in the grownrapidlyoverthepast10years,withworldtrade context of food safety standards under the Sanitary doubling. Several developing countries are trying to and Phytosanitary (SPS) Measures Agreement. enter foreign markets with highly seasonal fruit of varyingquality.Tradingconditionsforfruitarelargely RUBBER open, although food safety standards are strict. In Cambodia, mango production should be better After garments and footwear, rubber has historically organized, not only for export, but also to meet been Cambodia's most important export product. domestic demand, including from tourism. The quality of Cambodian rubber is generally high, yet it is seldom sold directly to overseas customers VEGETABLEOILS and is discounted by as much as 15-20% on world prices. The Cambodian rubber industry is still largely Cambodia imports many types of vegetable oils, but state-owned. Worldwide, the industry is still heavily is an experienced exporter of palm oil. Various affected by government intervention, and by oilseed crops are leaving the country, however, attempts in Asia to limit competition through through informal channels, to feed heavy processing cartels. Cambodia has confirmed, in the WTO capacity in neighboring countries. The world market accession negotiations, that it will privatize most for vegetable oils is complex because of competing public rubber industry assets by 2006. WTO rules temperatezone/tropicalproducts.Accessconditions and market access conditions will be of little value, are likely to improve, and production subsidies however, until Cambodian rubber producers are diminish, as a result of the WTO's Doha Round recognized for producing to international quality. 4 Sector Summaries FISH however,isvastandgrowing;USimportswereworth over $400 million in 2003. All of the major producers The opportunities for Cambodia to exploit its fish areAsiancountries,primarilyChina,butwithVietnam resources in export markets are clear, and potentially establishing itself quickly. China's penetration of very large. Demand for high quality fish and fish the US furniture market has already provoked products is expanding globally, while supply is protectionist action by Washington. This may limited.Marketsarelargelyopen,however,standards provideanopportunityforotherproducers.Forthe for consumer food safety, labeling, sustainable moment, however, Cambodia possesses neither the production, and the widespread use of subsidies, appropriate organization of producers, nor the set a series of barriers that need to be overcome in physicalinfrastructure,toengageinlarge-scaletrade. order for Cambodia to have a strong outlook for Thatmayrequiretheinvolvementofforeignpartners. enteringglobalmarkets.Cambodiaislosingthevalue of much of its marine catch due to the direct GARMENTS offloading of fish and shrimp onto foreign vessels. However, costs of processing, transport and As Cambodia's major export sector, the garment shipment in Cambodia are often too high for sector depends greatly on future developments in legitimatetradetobeprofitable.WTODohaRound the WTO. The special conditions applied to the negotiationstocontrolfishingsubsidies,ifsuccessful, global textiles and garment sector for forty years should open new opportunities. terminated in January 2005. Without guaranteed quota access to the US market, it is feared that SILKPRODUCTS Cambodia, like most other low-cost producers, will be eliminated by China. In reality, the situation is The world market for silk and silk products is low in more complicated. There are signs of a strong volume,andextremelyhighinvalue.Theproduction reaction to the dominance of China in the United of silk yarn occupies less than 0.2% of the global States (US) garment market. China's special WTO textilesfibermarket.Rawsilkpricesaretwentytimes accession terms allow for its textiles and clothing those of raw cotton and silk products, from yarn exportstobecontrolledbyimportingcountries.Other and fabric to high fashion, are premium products. WTO instruments exist that may also be used to Cambodianrawsilkisofhighquality,butproduction create obstacles to continued growth in market isminimal.Weaversrelyoninformalimports,which penetration by Chinese producers. Given those complicate the certification of origin of Cambodian possibilities, importers and retailers in developed made silk products. If standards and origin can be markets will need to diversify their suppliers. demonstrated, there are many market opportunities Cambodia has some advantages: it has a positive in wealthy Asian countries, which offer duty-free record on labor rights, and may be able to secure entry. Capacity is currently too limited to allow for preferential access in major markets. But, Cambodia economies of scale, and a critical mass of high-quality needs to meet origin conditions for duty-free access exportablegoods.Inthesecircumstances,WTOrules to the EU. This means developing an indigenous canhavelittleimpact. textiles sector, or evolving a coordinated ASEAN approach to garment production. Encouragingly, BAMBOO/RATTANFURNITURE Chinese garment manufacturers are increasing their investment in Cambodia. Cambodia's furniture production sector is not currently organized for export. Family businesses in FINANCIALSERVICES Phnom Penh and other major towns are producing relatively high quality furniture in hardwood, Lack of access to competitive financial services bamboo, and bamboo/rattan mixes. While both raw is a major structural handicap for trade-oriented materials and skilled craftsmen exist, domestically development and investment in Cambodia. producedfurnitureissoldinlocalmarkets.Theworld Concessions made on banking and insurance market for well-made rattan and bamboo furniture, servicesintheWTOnegotiationsarenotexpectedto 5 Cambodia and WTO: A Guide for Business have significant impact in the short-term. In the domestic constraints, some of that capacity will longer-term, if reforms are put in place, and are continue to be foreign-owned. At the same time, to accompanied by changes in business practices and be competitive, construction firms need competent public attitudes towards credit, they may help attract associated services, like transport, engineering, and investmentbyforeignfinancialservicesfirms,andin architectural firms. Cambodia's WTO services extending the services of existing banks and commitmentsallowrelativelyopenaccessforforeign insurance companies. However, such companies are firms. However, construction firms need to be able unlikelytobeinteresteduntiltherisksassociatedwith to secure materials and equipment on the most conductingbusinessinCambodiaareradicallyreduced. advantageous terms. In the case of cement, for instance,importsareexpensiveanddelaysindelivery CONSTRUCTION AND ELATED ERVICES R S due to administrative complications are common. Construction is, therefore, one important area of the In order to develop its infrastructure for export- economy where trade conditions governing both oriented development, Cambodia needs a goods and services are likely to be instrumental in construction sector capable of providing modern, determining output. efficient, and competitive services. Given present 6 3 Chapter The WTO Contract In September 2003, ministers from 147 member of market access and investment. In other words, countries of the WTO accepted the terms of the traders and investors on both sides should see a KingdomofCambodia'saccessiontotheglobaltrade more open and secure environment in which to body. Nine years after the original application, all the do business. requirementshadbeenmetbyCambodiaandactual The WTO contract is binding and enforceable. membership required only ratification of the Cambodian companies may, in the future, believe agreement by the Cambodian National Assembly. another WTO member is breaking the contract in This was achieved on 13 September 2004, and their treatment of Cambodian exports. If that membership became official 30 days later on 13 happens, they are entitled to ask the government to October2004. seekredressthroughbilateralcontacts,and,ultimately, The process for acceding to the WTO is long to obtain a judgment through the dispute and complex for any nation. The WTO is not a club settlement system of the WTO (see Box 1 on the that governments can join by paying a fee. It is a nextpage). legally binding contract between all existing members SeveralregionaltradingpartnersarealreadyWTO and the new member. The contract details the members, including Thailand, China, and the other conditions of trade between members, and large ASEAN markets. Not all of Cambodia's understandings on many domestic aspects of neighboring markets are subject to the WTO's regulation, legislation, judicial process, and enforceable trade contract, however; both Vietnam investmentconditions. andLaosareintheprocessofacceding. The contract offers Cambodia all the advantages Asanewmember,Cambodiamustdemonstrate andsecurityoftherulesanddisciplinesthatmakeup over the next few years that it is implementing the theWTO'slegalsystem,whichgoverntheactionsof commitments made to other WTO members. This all its members. It offers firm and predictable will be a challenge. Despite its status as an LDC, treatment for Cambodia's products and services in Cambodia's negotiators were pushed very hard in the markets of all other members. the final stages of the accession process to take on relatively demanding commitments. COMMITMENTS TO URTHER F REFORM It is difficult to predict the affect of WTO membership on Cambodia. The commitments may For existing WTO members, Cambodia's contract impose a competitive strain in some sectors or limit provides assurances of its continued commitment flexibilityincreatingnewpolicies.Thecommitments to economic reform, the implementation, over time, should, however, spur the government to pursue ofWTOrulesanddisciplines,andpredictableterms business-friendly reform measures (see Chapter 5). 7 Cambodia and WTO: A Guide for Business Box 1: Cambodia's right to challenge other WTO members The WTO contract applies to all members. To enforce its rights under the contract, procedures are available to Cambodia, just as they are available to Cambodia's WTO trading partners. In the future, if Cambodian exporters believe their products are not being treated correctly under WTO rules, they can takeaction. Although only the government can make formal representations at the WTO in Geneva, firms can request MoC to address their complaints on their behalf. Initially, this is normally done through direct, but informal, contacts between governments, sometimes through local diplomatic missions. If such contacts do not achieve results, then the government can present the issue at the WTO. One course of action is to raise the issue informally with the Geneva diplomatic mission of the WTO member concerned. Another is to put the issue on the agenda of the appropriate committee oversee- ing the relevant WTO agreement or provision. For example, a problem relating to a technical standard that is blocking specific Cambodian exports in a WTO market could be raised in the Committee on Technical Barriers to Trade. An issue concerning the operation of a quota on an agricultural product could be raised in the Committee on Agriculture. If these approaches do not work, or the problem is especially severe and urgent, Cambodia can go to the formal dispute settlement system of the WTO. This is the WTO's court system and its procedures are set out in the Dispute Settlement Understanding (DSU). The first step is to request formal bilateral consultations with the member concerned by notifying the WTO of the complaint. If these consultations do not provide results within 60 days, then Cambodia can call for a panel, normally of three independent WTO experts, to look into the complaint and make a judgment. Such judgments are largely made on the basis of an interpretation of WTO legal provisions, and usually take six to nine months. Once the findings of the panel are announced, there is an option for either side to appeal through the WTO Appellate Body. This can take an additional 60-90 days, and both sides must accept the verdict of the appeal. If a complaint by Cambodia was found to be justified, for example, then the losing member would have to implement the verdict, usually by removing the conflicting trade measure. If this is not feasible, there are other DSU provisions that result in an offer of compensatory trade benefits, or for the right of Cambodia to withdraw trade concessions from the other party. This entire process can take too much time, often up to 18 months, for exporters. Nevertheless, the dispute can be resolved, by mutual agreement, at any time during the procedure. This is often the case, and it is the intention of the DSU. Pursuing a DSU case, rather than taking a less formal approach, requires careful consideration. In addition to being time consuming, it can also be expensive, since experienced legal representation is usually necessary. Legal counsel for LDCs, however, can be secured without a heavy financial burden, through the Geneva based Advisory Centre on WTO Law. Governments cannot pursue every trade grievance in this way. In ten years, the WTO has dealt with over 300 DSU cases. Most cases have been resolved without going through all the procedures; only approximately 130 panels have been formed. The Cambodian government, and primarily the Ministry of Commerce, will have to decide which problems to pursue and how. Complaints made by entire manufacturing or farming sectors will carry the most weight in Phnom Penh. This is one reason why the formation of trade associations will be especially important for the private sector to recognize the full potential of WTO membership. EnquiriesaboutpossibleWTO-relatedactions,inresponsetoexportdifficulties,shouldbe addressed to: Ministry of Commerce, ASEAN & IOs Department, WTO Affairs Office, 20A Norodom Blvd. Phnom Penh. Tel. 855 12 638 686 Fax: 855 23 210 728. 8 The WTO Contract CAMBODIA IS A IONEERIN THE P WTO of its trade and economic policies, and developed a program for reforms. This program will move the CambodiawasthefirstLDCtoconcludeanaccession countrytowardscompleteconformitywiththeWTO negotiation in the WTO. Other poor countries in the next few years. Second, the negotiations entered the WTO more easily because they had been resulted in a package of "bound" tariffs on imports members of the WTO's predecessor, the General ofgoods.(Chapter7explainsthedifferencebetween Agreement on Tariffs and Trade (GATT). GATT bound, applied and preferential tariff rates). This members had the right to become founding package is part of the contract and is attached to the members of the new WTO in 1995.00000000000000 terms of membership as a tariff "schedule". Third, Cambodia's difficult road to accession means it another schedule sets out the conditions for the cannot be regarded as a country taking the benefits supplyofservicestoCambodia,includingtheterms of WTO membership without making its own forinvestmentandestablishmentbyforeign-owned contribution. Even if it is a minor player in world service providers. 00000000000000000000000 trade, Cambodia has earned the right to be heard WTO accession is not a guarantee of success in and to influence WTO decisions, especially in trade world trade. It is a tool, to be used by governments, negotiations like the current Doha Round. the private sector, and other stakeholders, that Some of the commitments made in Cambodia's provides opportunities and safeguards. Now WTO agreement are set out in the following Cambodia must uphold the commitments chapters.Inbroadterms,threekindsofcommitment and obligations it made, while maximizing weremade.First,Cambodiadetailedthecurrentstate opportunities. 9 10 4 Chapter WTO Origin and Principles The WTO is the successor to a previous trade The main body of WTO law is composed of agreementcalled the General Agreement on Tariffs over sixty individual agreements and decisions. All and Trade (GATT), which was created in 1948. The of these are overseen by councils and committees at WTOhasalargermembershipthanGATT,andcovers the WTO's headquarters in Geneva; the WTO more subjects. Nevertheless, it was GATT that doesn'thaveanylocalorregionaloffices.Large-scale established, multilaterally, the principles underlying negotiations, like the Doha Round, require their this trading system. Box 3, on the next page, own special negotiating forum. At least once every summarizes the history of GATT and the WTO. two years, WTO members meet at the The WTO is both an institution and a set of ministerial level. For the rest of the time, national rules, called the "WTO law". Each of the almost 150 delegates, who are usually diplomats and national WTOmembersarerequiredtoimplementtheserules, trade officials,conduct the day-to-day work. Box 2, andtoprovideothermemberswiththespecifictrade below, shows the basic structure of WTO benefits to which they have committed themselves. representativebodies. Box 2: World Trade Ministerial Conference Organization Structure (Every two years) General Council (Regular formal & informal sessions) Trade Policy Reviews Trade Negotiations Committee (6-8 countries reviewed each year) (Oversees the Doha Round) Dispute Settlement (Dispute Settlement Body meets when needed) Council for Trade in Goods Council for Trade in Services Council for Trade-Related (Oversees all goods agreements) (Oversees "GATS" agreement) Aspect of Intellectual Committees include: Committees include: Property Rights (Oversees TRIPS agreement) Agriculture Financial Services Market Access Specific Commitments Technical Barriers Sanitary and Phytosanitary Measures Customs Valuation Rules of Origin Anti-dumping Measures 11 Cambodia and WTO: A Guide for Business Box 3: A brief history of the WTO 1946-47 Negotiations among 50 countries, sponsored by the United Nations, to establish an International Trade Organization (ITO) alongside the World Bank and International Monetary Fund. A draft ITO Charter is drawn up. In parallel, 23 countries decide to negotiate a set of tariff reductions among themselves and to adopt some of the draft ITO trade rules. The tariff concessions and rules together are called the General Agreement on Tariffs and Trade (GATT). 1948 January 1: GATT enters into effect on a provisional basis. Of the 23 original members, 11 are developing countries. March: the UN Conference on Trade and Employment, in Havana Cuba, adopts the ITO Charter, but it remains subject to ratification by national legislatures. 1950 United States government announces that it will not seek ratification of the ITO Charter because of opposition in Congress. The ITO is therefore dead. 1948-95 GATT remains in place as a "provisional" agreement. 1948-86 Seven completed trade rounds under GATT Year Place/name Subjects covered No. Countries 1947 Geneva Tariffs 23 1949 Annecy (France) Tariffs 13 1951 Torquay (UK) Tariffs 38 1956 Geneva Tariffs 26 1960-61 Geneva ("Dillon Round") Tariffs 26 1964-67 Geneva ("Kennedy Round") Tariffs and anti-dumping rules 62 1973-79 Geneva ("Tokyo Round") Tariffs, rules on non-tariff barriers, etc. 102 1964 "Part IV" of the GATT is added to provide more favourable treatment for developing countries, in particular, that could receive tariff benefits in trade negotiations without necessarily making a reciprocal offer. 1973 The "enabling clause" is added to the GATT to make legal preference schemes for developing countries. These schemes, like the GSP, would otherwise be contrary to the MFN rule. 1986 The Uruguay Round is launched in Punta del Este, Uruguay. Its mandate is the biggest ever, covering tariffs and non-tariff rules, but also extending the trading system into the new areas of services trade and intellectual property rights. In addition, it was to completely re-design the dispute settlement system and establish a new trade organization to replace the "provisional" GATT. 1993 December 20: agreement is reached on all Uruguay Round dossiers. Approximately 23,000 pages of legal texts and national commitments on goods and services. 1995 The "Marrakesh Agreement" establishing the World Trade Organization comes into effect. 1995-2005 Implementation of most Uruguay Round agreements, including those on agriculture, textiles, intellectual property, customs valuation and other non-tariff barriers. 1997 Additional agreements are reached covering financial services and basic telecommunications services. 1999 Seattle ministerial meeting of the WTO fails to launch a new trade round. 2001 China becomes a WTO member after 15 years of negotiations. 2001 WTO ministerial conference launches the Doha Round. 2004 Cambodia becomes the 148th member of the WTO. 12 WTO Origin and Principles All this amounts to a heavy burden for many However, no WTO member, no matter how small, small and poor WTO members. To help lighten the can be ignored if its government believes a crucial load and ensure effective participation, technical national interest is threatened. This also means that assistance is available from the WTO and other once a decision is made, it has great influence in international agencies, including training courses for capitals and national legislatures. This would national trade officials. The assistance available, probablynotbethecaseifdecisionswerereachedby however, is insufficient for a country like Cambodia majority voting. to contribute actively in every area of the WTO. Cambodia will need to prioritize its objectives in PRIMARY WTO PRINCIPLES WTO membership, and the issues it raises before the organization. A small number of relatively simple principles Occasionally Cambodia may join a group, with underlie the rules of the WTO as they affect other countries leading the negotiations. The group Cambodia and, all other members: of least-developed country WTO members1 works together when they have similar objectives. One 1. LAWS AND REGULATIONS MUSTBE TRANSPARENT recent example involved seeking to make the WTO rules on special and differential treatment for Transparency is the primary principle of the WTO. developing countries more concrete (see the section Nothing is more important to business people than on non-discrimination on page 19). Additionally, a knowing and having confidence in the regulatory much larger group (the "G90") of least-developed environment in which they operate, at home and and other relatively poor WTO members have overseas.WTOagreementsusually have some form worked together in the Doha Round negotiations, of transparency requirement included that requires particularly on agriculture. governments and other authorities to publish all laws, regulations, and practices that can impact trade GOVERNMENT INVOLVEMENT or investment. Thisisdiscussedinmoredetailinthe nextchapter. Only governments take an active part in the work Such provisions are as important to of the WTO, as it is the governments that agree to companies operating within the domestic economy the contractual responsibilities of their WTO as those seeking to enter it. All firms operating in membership. The private sector, however, must Cambodia should experience an opening of the decide how its interests can be pursued in Geneva, regulatory framework for business. Without these and make the appropriate requests to government changes, hidden costs and informal payments would departments in Phnom Penh. The government increasingly hinder development, particularly if large should take positions in the WTO that reflect the international companies, who are traditionally broad public interest. However, if it is not, above all, unwillingtoacceptsuchpractices,plantoincreasetheir representing the needs of those private companies presence in Cambodia. Open markets within the that seek to grow, trade, and invest, then WTO WTO require open regulation andthe rule of law. membership will have little value. As a WTO member, Cambodia has committed WTO decisions are based on consensus, which itself to provide at least 30 days for comment on all means a decision can be adopted as long as no proposed new measures affecting trade in goods, member or group of members opposes it. Securing services,ortheprotectionof IP. New measures will consensus can be a long and difficult process. not become effective until they have appeared in the 132 of the 50 countries named by the United Nations as "least-developed" are WTO Members: Angola, Bangladesh, Benin, Burkina Faso, Burundi, Cambodia, Central African Republic, Chad, Congo, Djibouti, Gambia, Guinea, Guinea Bissau, Haiti, Lesotho, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Solomon Islands, Tanzania, Togo, Uganda, Zambia. 13 Cambodia and WTO: A Guide for Business Official Journal. The body of all current laws, 3. PROGRESSIVE TRADELIBERALIZATION regulations,anddecrees,aswellasadministrativeand judicial rulings, relating to trade must be available on A third principle isprogressive trade liberalizationthrough official websites: ww.moc.gov.kh (trade regulations) negotiation. The WTO is not a free-trade agreement. and www.cambodia.gov.kh (general laws and As the following chapterswilloutline,thereisscope regulations). for the legal protection of markets from import Three WTO agreements require specific competition. However, the underlying goal of the enquiry points to be established by Cambodia in WTO is to create trade and investment through order that overseas suppliers, or domestic firms, can increasinglyopenmarkets. seek information on current laws, regulations and Governments are free to open their markets practices. These are for regulations affectingservices, independently of the WTO. After accession, TBT (see Box 13 in chapter 8), and food safety (see Cambodia can liberalize further to the extent, and at Box A1.1 in Annex A1). the speed, the government thinks is appropriate. Cambodia is required to notify the WTO Roughlyonceeverytenyears,GATTandWTO directly of measures that fall within WTO havetraditionallylaunchedmultilateraltraderounds agreements. These, and the notifications of all other in which member countries engage in broad, general WTO members, can often be found on the WTO negotiations to open each other's markets or extend website: www.wto.org. the coverage of the rules. The WTO was established as a result of the Uruguay Round, which lasted from 2. NON-DISCRIMINATION 1986 until 1994. Cambodia will have the opportunity to A second key principle of the WTO rulebook is participate fully in the current Doha Round, which non-discrimination. The principle applies at two levels. has a broad agenda for negotiations. It is continuing At the first level, non-discrimination means that the process of liberalizing markets for industrial and Cambodian goods cannot be discriminated against agricultural goods, as well as services. It is in export markets with respect to the same goods expected to lead to a new WTO agreement on trade arriving from competing countries. At the second facilitation. This may be of particular interest to level, once they enter those export markets, Cambodia, especially if funding is made available to Cambodian goods cannot be treated differently than support the customs reforms that are the main the same goods produced locally. objective of the initiative. The Doha Round may Thefirstformofnon-discriminationisreferred also lead to further additions to WTO rules (see the to as "most favoured nation" (MFN) treatment. In issue of fish subsidies in Annex B for an example), other words, Cambodian goods must be treated no and to strengthening of the conditions applied to differently in the markets of a WTO member than developing countries. the best treatment available to any other member. The Doha Round has been severely delayed This principle is often breached, however, through because of differences over agriculture. It is most regional and preferential trade deals (see Box 4) likelytobeconcludedin2006/2007.Thismeansthat The second form of non-discrimination is the private sector in Cambodia still has a chance to known as "national treatment". It is an important determine objectives for negotiation, or, at least, to safeguard against situations in which goods can consult with the government on the strategy being enter a market, but are then made uncompetitive pursued. becausetheyaresubjectedtospecialtaxes,charges,or administrative practices that are not applied to locally 4. SPECIAL ANDDIFFERENTIAL TREATMENT producedproducts of the same kind. The guarantee of national treatment will help Cambodian goods A fourth principle is of "special and differential succeed in export markets. At the same time, treatment" for developing countries. In practice, this national treatment must operate within Cambodia permits easier conditions for poorer countries. This too, which might restrict domestic businesses' can mean not applying certain provisions of new ability to cope with import competition. agreementstodevelopingcountries.Itcanalsomean 14 WTO Origin and Principles Box 4: Regional and preferential trade arrangements ­ a challenge for the WTO When GATT was negotiated in the 1940s, it was always expected that some countries would want to get together to break down trade barriers among themselves. The European Union is the principal example. The calculation was that in reducing trade barriers among groups of similar countries, their economies would collectively grow stronger, and they would take in more imports than ever. Thus, even if there were discrimination against those outside the group, everyone would benefit. In allowing for regional trade agreements, GATT, and then the WTO, set some conditions. For example, the agreements should apply to substantially all trade among the parties, and should not lead to increased trade barriers to other WTO members. Unfortunately, the conditions have seldom been met, largely because of the challenges due to agricultural trade. In the past ten years or so, these regional pacts have proliferated to the point where almost every WTO member has an interest in one or more, and it is doubtful that many meet the WTO conditions. For Cambodia, the key regional trade agreement, in the foreseeable future, is likely to be AFTA, the ASEAN Free Trade Area. There is no reason to believe that AFTA will be more or less acceptable in the WTO than any of the similar existing arrangements, like Mercosur in Latin America, or NAFTA (US, Canada and Mexico). Most regional trade agreements involve reduction of most tariffs to zero, over time. Some, however, involve only one side opening its market to goods or services from a developing country. These are preferential agreements. Both the United States and the European Union offer preferential access through GSP (Generalized System of Preferences) schemes (see Chapter 7). Other developed countries operate similar systems, and it seems likely that developing countries will increasingly offer them among themselves. Preferences of this kind are also allowed for within the WTO. They may discriminate, but by providing favourable market conditions to poor countries, the expectation is that those countries will eventually grow and become worthwhile markets themselves; again, everyone should benefit. There is much doubt, however, about the long-term benefit of preferences. One drawback to these schemes is that they are essentially voluntary on the part of the importing country. Benefits can be withdrawn without the possibility of effective recourse to the WTO. Further, as the general levels of tariffs in major markets fall, the competitive advantage of preferences becomes less. There is also concern that investment is distorted towards sectors where preferences are available and away from sectors with better long-term prospects. Diversification is discouraged. In the long term, poor countries should not rely wholly on preferential agreements to fuel their export trade. 15 Cambodia and WTO: A Guide for Business providing poorer nations with more time to imple- members. Additionally, in trade negotiations ment such provisions than for developed countries. Cambodia will normally not be required to make a This is an important aspect of the Doha Round. major contribution in offering new market access As an LDC, Cambodia will find itself covered benefitstoothermembers.Theissueforprivatefirms by many special treatment provisions. For example, in Cambodia will be whether such conditions, over it may be relieved of the need to implement some the long term, help or hinder the development of future WTO provisions, or given much more time strong and competitive agricultural, manufacturing, to implement them than is the case for other and services sectors. 16 5 Chapter The New Regulatory Environment for Local Business During the accession process, and in the first few · CommercialAgencyLaw years of WTO membership, the emphasis, at least · LawEstablishingtheCommercialCourt for a country at Cambodia's stage of development, is · CivilProcedureCode on providing a satisfactory regulatory environment for trade and investment. In order to reach an · Civil Code agreement acceptable to other WTO members, · CriminalProceduresCode Cambodia had to enact many laws and regulations · Criminal Code that met WTO obligations. The government also · Competition Law developed a specific legislative program, through · SecuritiesandExchangeLaws 2007, to complete the process. The delay in forming a government in Cambodia following the 2003 elections also delayed Thisisademandingagendaforthegovernment the legislative program. Nevertheless, these measures and the National Assembly. For businesses, both include big changes to the framework within which domestic and foreign-owned, the key will be in the localfirmsconductbusiness.Lawsandregulationsare enforceability of new measures. For that, the of value only if they are enforceable, and enforceable establishmentofanefficientandrespectedcommercial through administrative and judicial systems that are court will be important. credible, open, and fair. This is one of the key tests Another requirement for growing businesses, for Cambodia as a WTO member. Other members and especially in the context of financing, is the use whose firms wish to trade or invest in this country of modern accountancy standards. The standards will watch closely. Clearly, it is also for the private themselves are not set out by the WTO. However, sector within Cambodia to be vigilant on its own the organization adopted disciplines in 1998 that behalf if it wants to see real benefits from WTO require accounting regulation to be transparent. The accession. disciplines also cover procedures and requirements The WTO will influence Cambodia's laws and affecting the licensing of accountants and their regulations in four areas: the general business qualifications. environment, trade in goods, trade in services, and the protection of IP. For the most part, the regulation REGULATINGTRADE GOODSIN of trade in services affects investment conditions, which are examined in the next chapter. There are many provisions in the WTO affecting cross-border trade in merchandise goods. Some are GENERALBUSINESS REGULATION important for Cambodian exporters and are discussed in Chapter 7; others will interest compa- Amongthekeypiecesofgeneralbusinesslegislation nies that need to import goods. Three provisions thatwerepromisedintheAgendaforEnactingLaws will have an impact on import practices at the border: for WTO Conformity in Cambodia are: customsvaluation,importlicensing,andpre-shipment · CommercialArbitrationLaw inspection (PSI). A serious concern of Cambodian importers has · InsolvencyLaw beenthevaryingvaluationsplacedonimportedgoods · CommercialContractsLaw by the customs service in order to levy duties and · CommercialLeasingLaw VAT.Businesspeoplecomplainthatvaluationschange 17 Cambodia and WTO: A Guide for Business on the same goods, and there is little logic in the dian importers will have a transparent, consistent, valuationsmadeonlargeandsmallshipments.Above and fair system to determine the basis for duties. all,thecurrentofficialcustomsregimeusesminimum, Associated with the process of customs andotherartificialvalues,ratherthaninvoicevalues. valuation is the practice of pre-shipment inspection WTO members also raised these problems during (PSI). PSI is normally conducted in the exporting meetings of the working party on WTO accession. country,howevermanycountriesthatlackaqualified Cambodia is committed to implementing the and trusted customs service hire PSI firms to WTO Customs Valuation Agreement (See Box 5). conduct a broad range of customs services at the Because implementation can be a complex and port of entry, such as checking the quantity, quality, Box 5: The WTO Customs Valuation Agreement The WTO regulates the valuation to determine import duties made by the customs service. Essentially, the valuation should be the transaction value of the imported goods, in other words, the price paid by the importer, listed on the invoice. Customs are entitled to add certain costs or charges to the invoice price if they are not already included. These are detailed in the Agreement and include: commissions and brokerage, packing and containers, and royalties and license fees. Transport, insurance, and related charges up to the port of entry can also be added. The WTO Agreement includes a short list of situations where customs can reject the declared transaction value. When it does, five other standards for determining the dutiable value are available; notably the transaction value determined for a previous shipment of identical goods. Where there is a delay in determining a customs value, the importer should have the right to withdraw the goods from customs on payment of a guarantee or deposit. Importers must have the right to a written explanation of the manner in which the customs service has made its valuation calculations. They must also have the right to appeal a customs valuation, without fear of a penalty, to the customs administration or to an independent body. Confidential information provided to the customs administration must not be disclosed. burdensomeprocess,CambodiaandtheWTOhave and price of goods. These firms also verify tariff agreed on a five-year transition period. The process classifications2 to be applied and the duties payable. will be progressive, but by 1 January 2009, the At the time of writing, bids for a new PSI contract Agreement's provisions should be fully operational for Cambodia were under consideration; Société inCambodia.Oncetheimplementinglawsandregu- Générale de Surveillance (SGS) from Switzerland is lations are effective, overseas suppliers and Cambo- the incumbent. 2A tariff classification is a number that identifies almost all goods in order to assign customs duties. Broad product groups are given a relatively short and simple number. For instance, garments are normally covered by the classifications, or chapters, 61 and 62. The classification number is longer when a product is more precisely defined. For example, women's and girls' suits, dresses, and skirts are covered by a classification 61.04, and women's cotton dresses are 61.04.42.00. In some industrial countries, which import many products, as many as ten figures can be used for a classification. There are several classification systems. Most WTO member countries, including Cambodia, use the "Harmonized System" of classification, which is administered by the World Customs Organization in Brussels. 18 The New Regulatory Environment for Local Business TheuseofPSIservicesbydevelopingcountries members criticized the operations of SGS on behalf has been justified for several reasons. In addition to of Cambodia. Concern over the charges imposed on ensuring that the goods ordered are the goods exportersforPSIinspections(0.8%oftheshipment shipped, in both quantity and quality, PSI can stop value),andthe7%penaltyimposedonnon-inspected the over-invoicing and under invoicing of imports. goods, was expressed. Cambodia took steps to Over-invoicing facilitates the illegal movement of resolve the problems, and assured other WTO money overseas (capital flight), since the payment members that the use of PSI would be temporary, made greatly exceeds the true value of the goods. and would be terminated once the capacity of the Under-invoicing results in lost revenues from Customs Department was increased. customs duties and other taxes due to lower customs valuations. In the case of Cambodia, PSI IMPORTLICENSINGDISCIPLINES probably helps speed up customs clearance at the ports, and serves to reduce corruption by pre- Another area of uncertainty for business in determining the duties payable. Cambodia has been the operation of the import Large exporting firms in developed countries licensing system. Import licensing can involve have often complained that the PSI inspections in administrative burdens, delays and informal exporting countries lead to unwarranted and paymentstoofficials.Inpractice,animportlicensing unexplained downward adjustment of invoices, system can amount to a quota restriction. As such, and to delays because of the physical inspection all import-licensing schemes are a burden on of shipments. investment companies, farmers and wholesale-retail The WTO Agreement on PSI (see Box 6 businessesneedingforeign-madeinputsandsupplies. below) sets out detailed rules for the use of PSI Licensing is permitted under the WTO (see services.Inparticular,itallowsfordisputesettlement Box 7), but in carefully specified circumstances and when exporters or importers encounter problems. undertightlydrawnconditions.Theseconditionswill During the accession process, several WTO needtobeobservedbyCambodiaasaWTOmember. Box 6: The WTO Agreement on Pre-Shipment Inspection The agreement's provisions include the following: · Pre-shipment inspection (PSI) can only be used on a temporary basis. · There must be no discriminatory treatment among different exporters. · Inspections are normally to take place in the exporting country. · The laws and regulations governing PSI companies, as well as their procedures and inspection criteria, must be transparent. · Confidential information must be protected. · Delays to shipments must be avoided. · Detailed conditions for shipment price verifications by PSI companies. · Dispute settlement machinery at three levels: - PSI companies must designate officials to whom exporters can address grievances. - If there is no agreement on a complaint within two working days, exporters have recourse to an "Independent Review Entity" operated jointly by the International Chamber of Commerce and the WTO. - In extreme situations, governments can take complaints to the WTO's dispute settlement procedure. 19 Cambodia and WTO: A Guide for Business Box 7: Import Licensing Rules in the WTO The WTO Agreement on Import Licensing Procedures includes the following provisions: · Information on the licensing procedures must be published and include: o The eligibility of firms, persons or institutions to make applications; o The administrative body responsible for issuing licenses; and, o Theproductssubjecttolicensing. · Paperwork should be easy and penalties cannot be imposed or licenses refused where errors are made without ill-intent. · Where licensing is "automatic" - i.e. no discretion is exercised by the authority - the license should be granted within 10 working days. · For "non-automatic" licensing, the license should be issued within 30 days, if on a "first-come first-served" basis; or 60 days if all applications are considered simultaneously. · The period of a license must be "reasonable", for instance, to facilitate long-distance shipments. · These, and all provisions of the Agreement, were to be implemented at the time of Cambodia's accession. Cambodia has assured the WTO that its use of As for import licensing on pharmaceuticals, the import licensing is limited. Five classes of products Cambodian government informed the WTO that havebeendeclaredtotheWTOassubjecttolicenses: the system was a response to Cambodia's problems · Pharmaceuticalsandmedicalmaterial; withcounterfeitmedicinesanddrugtrafficking. · Agricultural inputs (principally pesticides and Import licenses can only be secured by fertilizers); enterprises registered by the Ministry of Commerce · Weapons, explosives, and ammunition; (MoC) (also see Appendix 3, The Role of Camcontrol). MAFF issues licenses for agricultural · Vehicles,aircraftandparts,shipsandboats,and inputs, while the Ministry of Health issues those for other machinery for military purposes; and, pharmaceuticals and medical materials, product-by- · Gold,silver,preciousstonesandarticles made product. from them. Most concern from WTO members during the accession negotiations was directed at the licensing According to the Government of Cambodia, of pharmaceuticals and agricultural inputs. none of these licensing requirements, with the Responding to complaints that the system exception of those for pesticides and fertilizers, are constrained imports for no credible reason, the intended to impose quantitative limits on imports. Cambodian government undertook to eliminate They exist, rather, for health, safety, consumer quantitative restrictions on imported agricultural interest, national security, and environmental inputs by 1 June 2005. A WTO-consistent method protection purposes. of registering and reviewing imported agricultural Inthecaseofchemicalpesticidesandfertilizers, chemicalswillbeimplemented. the Ministry of Agriculture, Forestry, and Fisheries (MAFF) sets import limits based on an annual REGULATION INTELLECTUALPROPERTYPROTECTION OF assessment of farmers' needs, as well as the need for environmental protection, and health and safety Since the WTO was established and its Agreement considerations. Licenses are issued on a first-come, on Trade Related Aspects of Intellectual Property first-served basis. When necessary, MAFF can Rights (TRIPS) came into effect, there has been authorize imports over the annual limit. pressureforallnewlyaccedingcountriestoapplyand 20 The New Regulatory Environment for Local Business enforce patents, copyright, and other intellectual capacity to enforce them can be a significant property rights (IPR). Even as an LDC, Cambodia attractionforpotentialinvestors.Cambodiahaslong wasfacedwithsuchpressure,despitetheinstitutional, accepted that IP protection could aid development administrative, and policing burdens of meeting and encourage the transfer of technology. The many of the obligations. country is a member of a number of key For the most part, the interest in securing international agreements, and has been TRIPS commitments (see Box 8) comes from major progressively introducing legislation to enact IP industrialsectors,indevelopedcountries,thatexpect treaties. Further, it is engaged in the cooperative to export their own branded goods or to produce program on IP protection within ASEAN. them locally. They react strongly to counterfeiting Much remains to be done in terms of and copying (for example, of films, videos, CDs, implementing practical IP regulations. International watches, and software), the denial of patent investors will want to see not only the adoption of protection (for example, of pharmaceuticals and international IP protection standards, but also the agricultural chemicals), and the abuse of trademarks presence of administrative and judicial machinery to and trade names (for example, of beverages). In allow for administrative, civil, and criminal short, owners want their ideas protected, and, procedures. As part of the WTO accession terms, therefore, to retain the right to exploit them com- Cambodia committed itself to an "Action Plan" for mercially. full implementation of TRIPS that was to be At the same time, respect for IPR and the concludedby1January2007. Box 8: The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights Normally referred to as the "TRIPS" Agreement, the WTO rules require members to meet minimum international standards for the protection of: · Patents; · Copyrights; · Trademarks; · Industrial designs; · Layout designs of integrated circuits; · Undisclosedbusinessinformation;and, · Geographical indications. The TRIPS Agreement seeks a balance between the rights of intellectual property owners, the users of intellectual property, and the wider public interest. The rules on patent protection, for example, allow for circumstances in which governments can provide "compulsory licenses", allowing the exploitation of a patented invention without the permission of the owner of the patent. The WTO has recently clarified the situations in which such licenses can be issued in order to allow production, and ensure supply, of vital pharmaceutical products subject to patent protection. Apart from setting standards of protection, TRIPS also sets out strong requirements for the enforcement of IP rights by their owners. This includes provision for civil, administrative, and criminal procedures and penalties. It also allows for the seizure of counterfeit or pirated goods at the border. 21 22 6 Chapter The New Investment Environment Most Cambodian business people give the same list and a respectable judiciary; a corrupt administrative of reasons when asked why they do not invest more bureaucracy;smugglingofcompetingproducts,and forexport:theycannotgetcreditonreasonableterms complications and high costs associated with getting tofinanceinvestment;theinfrastructureinCambodia inputs into the country and exports out. Some is too poor to offer reliable, timely delivery to overseas firms take the minimal risk approach of customers; the hidden costs of administrative opening a representative office and sourcing supplies demands, and the bribery of officials are too high for from local firms. With the exception of the garment domestic production to be competitive; the costs and industry,however,majorfirmspreferotherlocations complications of buying capital equipment from for significant capital investment. abroadareexcessive;powerandfuelpricesaremuch Many will admit that things are improving, but higherthaninneighboringcountries;Cambodialacks Cambodia's potential investors, and in some cases an efficient, non-corrupt legal system; there are not its existing investors, are nervous. Approval of enough well-educated and well-trained workers; and, investment projects fell from $832 million in 1998 many already have a comfortable niche in the to $217 million in 2004. Agribusiness investment domestic market. approval fell even more, from 23.15% of the total to The issues are similar for potential investors 8.63%. Foreign Direct Investment (FDI) rose to from abroad, many of whom look into Cambodia $243 million in 1998,andthendroppedprogressively and walk away: poor infrastructure; lack of local to $141 million in 2004. finance; high power costs and unreliability; lack of Thefailuretogenerateinvestmentfromabroad regulatorytransparency;absenceofacommercialcourt or among domestic firms is not a reflection of a lack Box9:TheWTOandlaborstandards The relationship between WTO rights and the recognition, by its members, of international labor standards has been a long-standing issue in the organization. Initiatives to secure a formal, legally enforceable, link have failed, largely because many developing countries saw them as a disguised means of protecting markets in industrial countries. Thus, the only exception, written into GATT, provides for measures against the exported products of prison labor. Other than that, there is no legal basis on which WTO members can discriminate, with respect to their WTO obligations, against countries that fail to enact or live up to International Labour Organization (ILO) standards. Nor can they discriminate in favour of those that do. For preferential agreements it is another matter; the US and EU commonly use labor standards as acriteriaforcoverage. In 1996, WTO ministers rejected the use of labor standards for protectionist purposes, but agreed to "renew" their commitment to the observance of those standards. They confirmed that the ILO was the competent body to set and deal with such standards. The WTO has no more than a cooperative relationship with the ILO. 23 Cambodia and WTO: A Guide for Business ofassets.Cambodiahasmanypositivecharacteristics. Services (GATS) works, while Box 11, on the While Cambodia may be a small market, its following page, illustrates some of the more neighbors are large. It is a member of an important important commitments made by Cambodia. trade grouping,AFTA. It has natural resources. It can Negotiators were pressured to make commitments offer high-quality agribusiness products, and has the to GATS, but many aspects of Cambodia's services space and fertility to produce much more. It has a economy are untouched by the WTO; the vast,youngworkforcecapableoflearningnewskills. government made clear its reservations in some Labor costs are still low, and Cambodia has earned a key areas. Generally, countries negotiate new positive reputation for complying with international commitments in services over time, as they have labor standards (See Box 9 on the previous page). It negotiated to progressively reduce their import is an ideal place for US and European buyers to duties, in some cases over five decades. diversify away from an over-reliance on China as a In the long-term, the opening up of the supplier. It could be a location for the outsourcing services sector in Cambodia should benefit almost of manufacturing tasks by Thai, Chinese and, all Cambodian firms, especially those in the eventually,Vietnamesefirms,ascostsincreaseinthose manufacturingandagriculturalsectors.Fromefficient countries. and competitive financial services, to advanced An important question is: How can Cambodia's telecommunications and transport infrastructure, accession to the WTO help amplify the nation's improved services will support the enhancement of investment assets and dismantle its handicaps? It is the industrial base and the competitiveness of importanttorememberthattheWTOcanonlymake Cambodian exports. a contribution. WTO membership will not build roads or schools, directly create jobs, or distribute WTOCOMMITMENTS GIVE NVESTORS ONFIDENCE I C cheap medicines. It cannot require any company to invest. It can merely help Cambodia create an Investorsintheservicessectorneedtofeelconfident environment for investment. of the minimum conditions that will attach to their As discussed in Chapter 5, the initial impact of operationsinCambodia.Thegovernmentmaychose the WTO will be on the regulatory environment. to offer better conditions than those agreed in the If overseas companies can look at Cambodian WTO;buttheycannotimposeworse.Thatisameans institutions - notably the courts, government of establishing some security for investors. ministries, and provincial administrations - and have Annexes E1 and E2 look specifically at how confidence, then other elements of the WTO financial and construction services may be affected agreementwillbecomerelevant. by GATS. Clearly, these two sectors are crucial to the future development of productive and competitive DEVELOPING SUPPORTSERVICES industries in Cambodia. They are part of the fundamental business infrastructure, without which It is the commitments made by Cambodia in the little else will move forward. Other services that area of services that may attract investors the most. willneedtoplayabiggerrole,andwheremeaningful While, as its name implies, the WTO is largely an WTO commitmentsweremade,include:telecommu- agreement about trade, not investment, the rules nications, education, health, legal, accountancy, and coveringservicesarealmostentirelyaboutinvestment. passenger transport services. After all, to trade in services like banking, insurance, It is sometimes erroneously claimed that by telecommunications,andconstruction,theclientand making commitments to open services sectors, the services firm have, for the most part, to be in the governments give up their right to regulate those same country. It is the terms, under which foreign services;forinstance,intheinterestsofpublichealth servicesfirmscanestablishthemselvesinCambodia and safety, or to safeguard the banking and insurance that were the object of the accession negotiations in industriesthroughprudentregulation.Governments theWTO. maintain an absolute right to regulate; even, in some Box 10, on the next page, provides a brief instances, to discriminate between domestic and outline of how the General Agreement on Trade in foreign-owned firms. Nor is it the case that GATS 24 The New Investment Environment Box 10: How the WTO Services Agreement Works Effectively an investment agreement, the General Agreement on Trade in Services (GATS) has few obligations that all members must accept. For the most part, countries take on only those obligations they wish to, and in the services they are willing to open up. Investors have the guarantee that they will benefit from treatment at least as favourable as those listed in each WTO member's "services schedule". This does not mean that governments cannot offer even more favourable conditions; they often choose to do so, but such conditions may be insecure and unenforceable. Two key GATS obligations that all members must fulfil are: · Transparency of services regulation; Cambodia must, for instance, establish an enquiry point where foreign services companies can get information on applicable rules and laws. · MFN (see Chapter 4), or non-discriminatory treatment among foreign services providers. Exemptions from this rule are possible and Cambodia has taken some. However, market access and "national treatment" (the treatment of foreign services providers on an equal basis with domestic providers) are both matters for negotiation and specific national commitments. Cambodia, like all other WTO members, has a services schedule attached to its accession agreement that indicates, sector-by-sector, whether commitments have been made and, if they have, any restrictions that apply with respect to national treatment and market access. The schedule covers, for each service activity, and for both national treatment and market access, all four possible modes of delivery of services recognized in the GATS. The four possibilities are: 1. Cross-Border Supply ("Mode 1") in which the service does cross borders; for instance, international telephone calls or on-line medical diagnosis. 2. Consumption Abroad ("Mode 2") in which the consumer must cross borders; for instance, tourism. 3. Commercial Presence ("Mode 3") in which a foreign-owned services firm physically establishes itself in the market; for instance, retail bank services or chain stores. 4. Presence of National Persons ("Mode 4") in which services are delivered directly in the market by foreigners; for example, consultants, pop singers and football players. forces the privatization of essential publicly-owned The reduction, or remission, at the border, of services. If governments wish to maintain complete import duties and VAT on inputs into products that sectors or specific service activities under public are later exported, may be seen as an export ownership, they may do so. That is the case, for subsidy in the WTO. This might lead to disputes, instance, for many education, health, and water though it is most unlikely in the case of Cambodia. supplyservicesinEurope. Alternatively, it could lead to additional, or countervailing3 , duties being imposed on INVESTMENTINCENTIVES Cambodian products in Cambodia's export market. It was pointed out during the WTO accession As a WTO member, Cambodia will be affected by processthattheremissionschemecurrentlyinplace many disciplines concerning the use of subsidies. was "highly complex, lacking in transparency, and These are set out principally in the WTO Agreement prone to abuse". Further, the danger of possible on Subsidies and Countervailing Measures (see countervailing action in export markets detracted Chapter8).Asapoorcountry,itisunlikelytousedirect from the security and predictability sought by subsidies as a tool to push industrial investment. investors and buyers of Cambodian products. A 3A countervailing duty is an additional import duty that is set at a level to offset the value of a subsidy. 25 Cambodia and WTO: A Guide for Business Box11:Cambodia'sCommitmentsinServices Much of what Cambodia agreed to in the WTO merely reflected policy reforms already enacted or expected. Nevertheless, the security of "scheduling" will ultimately be of great importance to investors. In some instances, Cambodia insisted on reserving aspects of its current policies that place restrictions on foreign services providers. Among reservations of broad, or horizontal, application are: · Protection of thecurrentrightsandconditionsof existingforeignservicesuppliers.Thismeansthat foreign services companies that have operated in Cambodia for some time will not lose advantages from which they already benefit (even if they are advantages that new investors will not receive). · Continuation of the prohibition on non-Cambodians owning land. · TheobligationoninvestorsseekinginvestmentincentivestoprovidetrainingtoCambodians, including for managerial positions. Without this reservation, the obligation might be challenged in theWTO. · TheconditionsforforeignnationalswhowishtoworkinCambodia.Thesecoverbusinessvisitors, persons responsible for setting up a commercial establishment in Cambodia and intra-corporate transferees (executive, managerial, and specialist staff of foreign firms working in Cambodian branches,subsidiaries,andaffiliates). · VariousexemptionsfromMFNtreatmentintheaudio-visualandtransportsectors.Thismeans Cambodia can continue to have special arrangements with neighboring countries in the land transport, Mekong river navigation, and maritime sectors. In the audio-visual sector, it means film co-production agreements and international audiovisual support programmes will be protected from WTO challenge. At the sectoral, or vertical, level: · Thefollowingservicesarelargelyopen,withtheexceptionofconditionsonthemovementof foreignpersonnel: o Professionalservices o Computer, rental/leasing, and other business services o Construction and engineering (see Annex E2) o Distribution and retail services o Education o Environmental services o Hospitalservices o Recreational,culturalandsportingservices · Legalservices:currentrestrictionsonforeignlawfirmsaremaintainedincludingthebanondirect representation of clients in court. · Telecommunications:courierservices,mobile,andvalueadded,fixed-lineservicesareopen;basic fixed-line services are subject to Telecom Cambodia monopoly until 1 January 2009. · Insuranceservices:largelyopenexceptforcross-bordercoverage.Licensingrequirementsareasfor national firms. 20% of reinsurance risk must be placed with Cambodia Re until 31 December 2008. Cover amounting to $500,000 or less to be reinsured locally until 31 December 2008. (See Annex E1) · Bankingservices:mostcommercialbankingservicesareopen,includingacceptanceofdeposits, lending, and payments/credit card services. Foreign companies must meet licensing requirements. (See Annex E1) · Tourismandtravel:largelyopen.Therighttoestablishappliesto3-starhotelsorhigheronly.The issuance of restaurant permits will continue to take account of local characteristics. · Transportservices.Roadtransport:largelyopen.Internationalmaritimeservices:nocommitments except to permit to maritime suppliers "reasonable and non-discriminatory access" to normal support services. Air transport: commitments only to open aircraft repair and maintenance, marketing of air services, and computer reservation systems. Pipeline transport services: can only be provided on the basis of state-granted concessions. 26 The New Investment Environment duty drawback system would provide a more stable tional competition. For instance, measures that tie andWTO-safeapproach.Inotherwords,ratherthan investmentincentives to the use of local inputs, or to theimportedinputsbeingexemptfromdutyorVAT specific export targets, are outlawed. These are when they enter Cambodia, those costs could be believed to distort international trade. Cambodia has claimed on the exported product. Cambodia's removed one potentially offending measure in its negotiators stated at the WTO that the country does InvestmentLaw,whichmadeimportdutyexemption not currently possess the administrative resources dependent on the export of 80% of production, necessarytooperateafulldrawbacksystem.Theywere and has assured the WTO that it will not introduce given until 2013 to resolve the problem. anyincentivesthatcontravenetheTRIMSagreement. Similarly, Cambodia will need to observe Both the rules of TRIMS and the subsidies disciplines under the WTO's Agreement on Trade agreements in the WTO would be applicable in the Related Investment Measures (TRIMs). This development of Special Economic Zones. Many agreement prohibits a number of practices where other members have established these zones investment conditions potentially distort interna- without having difficulties within the WTO. 27 28 7 Chapter The New Trading Environment: Opening Markets Much of Cambodia's trade performance as a WTO Cambodian market has already taken place, and the memberwilldependonusingWTOdisciplinesand competitive effects have been absorbed over several commitmentstoimprovetheregulatoryenvironment, years. As will be explained, the additional market and to spur the necessary investment in services that opening for Cambodian products overseas is also willenhanceproductivecapacityandcompetitiveness. limited.WhatcountsisthedegreetowhichtheWTO Building world-class exporters will not be easy. ensures markets are not only open, but stay open. Smuggling across the Vietnamese and Thai Thissecurityandpredictabilityshouldgiveconfidence borders is rampant, and must be defeated for to investors and traders. Cambodia to realize its full potential as a trading Primary reform of the Cambodian customs nation. If producers and traders find informal trade tariff structure (see Box 12 below for tariff terms) routes, especially for the export of Cambodian raw took place in mid-2001, during the WTO accession materials,easierandmorelucrativethanformaltrade, process. At this time, a 12-band tariff structure was the WTO rules will have little impact. reduced to 4 duty rates (0, 7, 15 and 35%). Tariff rates at levels of 40%, 50%, 90% and 120% were OPENINGFOREIGNMARKETS eliminated completely, and the simple average applied rate was reduced from 17.4% to 16.5%. A Themostpubliclyrecognizedfacetsofthenewtrade second stage of tariff reform that would reduce the environment will be, first, the extent to which foreign simple average below 15%, in particular by further markets are accessible to Cambodian products and, reducing rates on imported raw materials for local second, the opening of the Cambodian market to industry, is due to be implemented. However, this moreoverseascompetition.Itiseasytoexaggeratethese phase of customs reform is not tied to the WTO effects. For the most part, the opening of the agreement. Box 12: Some definitions of tariff terms 1. WTO bound tariff­ customs duty ceiling guaranteed and enforceable in the WTO. 2. MFN rate ­ duty level that applies to all other WTO members and other nations to which MFN conditions are freely offered (e.g. many countries applied MFN treatment to Cambodia even before it was a WTO member). An MFN rate can be a WTO bound tariff rate (all WTO bound tariffs must be MFN), or an applied rate. It could also be a rate offered by members of a regional trade arrangement (say, AFTA) to all trading partners outside the group. 3. Applied rate ­ the customs duty actually charged at the border. An applied rate can be applied on an MFN basis, but it can also be a preferential rate or a rate charged among members of a regional trade arrangement. 4. Preferential rate ­ an especially low, or zero, rate applied to all or some developing countries. The best examples are the GSP (Generalized System of Preferences), or the EU's "Every- thing but Arms" (EBA) initiative, for least-developed countries. 29 Cambodia and WTO: A Guide for Business Cambodia offers some limited preferential that imports are not bad. They permit Cambodian (lower than normal) rates to its ASEAN partners4 businessesandfarmerstosecure,atreasonableprices, through the Common Effective Preferential Tariff capital goods and industrial/agricultural inputs. Very (CEPT).Otherwise,allappliedratesareMFN,which often,theremaybenodomesticcapacitytoproduce are the same for all countries. These CEPT rates are these necessary items in Cambodia. Perhaps even those actually applied to imports. The WTO negotia- more important, imports bring basic consumer items tions were about the rates to bebound5 as part of the cheaply to poor people. So, it would be a mistake to accession agreement. see trade policy, under the WTO or not, as simply an effort to cut imports and build exports. FUTURE TARIFFINCREASES ADDITIONALIMPORTCHARGES For many products, Cambodia bound its currently applied tariff rates in the WTO. In other words, The WTO rules tightly restrain the charges that can traders can rely absolutely on the WTO tariff rate. be made on imports over and above customs For other products, the WTO bound rates, or duties. Cambodia undertook not to impose any other bindings, are a few percentage points above the duties and charges. Existing charges of US$0.02 and applied rates. For some sensitive items, the bound US$0.04 per litre imposed on petrol and diesel, rate is much higher than the currently applied rate. respectively, were to be rolled into a new compound For example, the bound rate on rice is 40%, while the tariff rate. applied rate is currently 7%. For many vegetable oils, Charges made for official services rendered at the bindings are at 30% or 40%, while actual rates the ports, with respect to imports and exports, charged are at 7%. Binding on alcoholic drinks are should be proportionate to the cost of the services 40% against an applied rate of 35%. For textile provided. Thus, Cambodian authorities, notably fabrics, the applied rate is usually 7% while the Camcontrol and the customs department, may not bindings are at 7%, 10%, and 12.5%. charge fees on the basis of a fixed percentage of Cambodia retains some freedom to increase its consignment/shipment values. Since, normally, the rates, if necessary, without running any risk of paperwork related to a single shipment is much the challenge within the WTO. At the same time, where same, regardless of size or value, the fees charged it has kept bound and applied rates close, Cambodia should be standard. The WTO has noted the Riels is providing traders and investors with an important 15,000 (US$4) fee charged per import/export degree of security. And, to the extent that duties on declaration. basic household items are kept low, consumers will Internal taxes must not discriminate against benefit,especiallythepoor. imports. Excise taxes6 are imposed in Cambodia on Accession to the WTO does not mean a a range of drinks, tobacco products, petrol, and large-scale fall in applied tariff rates in Cambodia, lubricating oil at 10%. These rates apply equally to which would result in an explosion of foreign domesticallyproducedproducts.Formotorvehicles competition. It is also important to keep in mind and their spare parts, the excise tax ranges from 5% 4ASEAN members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. 5 A "bound" tariff means that any exporter or Cambodian importer has a guarantee that the customs duties to be applied to his goods cannot be any higher than the bound rate. It may be that the applied rate is lower than the bound rate, but that is not part of the WTO contract. If Cambodian exporters find themselves being charged import duties that are in excess of WTO bound levels, then they can insist the customs service concerned reduces the rates. Alternatively, they should complain to MoC in Phnom Penh, which could take up the matter on a government-to-government basis. 6 An excise tax is an indirect tax charged on domestic and imported groups in a small number of product categories. Excise taxes in Cambodia have been largely replaced by VAT. 30 The New Trading Environment: Opening Markets to 110%. A special 3% tax on imported alcohol and case for many developing country WTO members. tobacco products was applied to domestically For most developing countries that were previously produced items in 2002. members of GATT, there has been little pressure to The VAT regime operating in Cambodia is also bindtariffs. subject to the same requirements for non- India, for instance, has bound less than 75% of discrimination between domestic and imported its tariffs, though this is a big improvement on the products (national treatment), and among foreign situation in the 1980s, before the Uruguay Round. suppliers. The average level of bound tariffs in India is 51% (116%foragriculturalproducts,and38%forindus- MARKETACCESSOPPORTUNITIES FOR AMBODIAN C trial products). India's applied rates average around COMPANIES 30%. Thailand has a very complex tariff structure with fewer than 75% of the lines bound. The Just as the influence of WTO accession on the average bound rate is 28%, while the simple average further opening of the Cambodian market is applied rate is around 15%. limited,theinfluenceonadditionalmarketaccesslikely In contrast, Vietnam and Laos, currently to be available to Cambodian exporters is also negotiating WTO membership, are likely to be limited. Cambodia already benefits from many required to bind most, if not all, of their tariffs, and favorable trade relationships. Where they do not to fix bound rates reasonably close to applied rates. enjoy preferential access terms, its exporters seldom In joining the WTO, China bound its entire tariff havetopaydutiesabovethelocalMFNappliedrates. with a 15% average (maximum 65%) for agricultural This is not to deny the value of WTO products, and 8.9% (maximum 47%) for industrial membership as a vehicle for enhancing Cambodia's goods. export potential. But, the benefits from better tariff treatment in key markets will, on the whole, be 2. GSPSCHEMES limited.Asisthecaseforforeigncompaniesexporting to Cambodia, the principal market access advantage For some major industrial country markets, for Cambodian producers in export markets will be especially the US, it is the availability of tariff the security of the bound tariffs committed by all advantages under the Generalized System of other WTO members. Thus, in almost 150 Preferences(GSP)thatwillcontinuetobeimportant countries,Cambodianexporterswillhaveaguaranteed for Cambodian exporters. ceiling to the customs duties they can be charged by GSPbenefitscannotbeguaranteedintheWTO, customs authorities. andtheirapplicationisoftensubjecttoarbitrarydeci- The practical reality is that the trading sions by the importing countries. As is particularly conditions that Cambodian firms will need to thecasefortheUSscheme,"sensitive"productsmay master are very complicated. As has already been not be covered; a problem for Cambodian garment discussed, the global trading system is now and footwear manufacturers. In recent years, the fragmented by regional, bilateral and preferential observation of international labor standards has trading arrangements. As an LDC, and a member of become an active criteria for the US and European the ASEAN Free Trade Area (AFTA), Cambodia Union (EU) schemes. Cambodia, which has a benefits from many such arrangements. The positive reputation for upholding labor standards, following paragraphs explain some of the most has little to fear in that sense. The US also applies important of these arrangements. criteria relating to the protection of IPR. Other potentially distorting factors have been 1. LEVELS OFBINDINGSANDAPPLIED DUTY RATES the special advantages offered to countries fighting drug trafficking or terrorism and, in the case of the Although Cambodia has committed to bind its EU, environmental protection. entire tariff in the WTO, and has relatively small Although all developing countries canqualifyformost differences between the bound duties and the actual GSPschemes,thereisincreasinglya view in the indus- (applied) duties it charges importers, that is not the trial world that it should be the poorest nations that 31 Cambodia and WTO: A Guide for Business receive the most benefits. It has been proposed, for the local export performance of Cambodia. AFTA instance, that the EU GSP scheme for 2006 - 2015 will require Brunei, Indonesia, Malaysia, the target LDCs and be simplified. This may assist Philippines, Singapore and Thailand to eliminate Cambodia, especially if, as proposed by the EU most import duties by 2010. The remaining AFTA Commission, the new scheme also improves the signatories, Cambodia, Laos, Myanmar and Vietnam, application of rules of origin (See Annex D on the have until 2015 (with some possible flexibility) to garmentsector). eliminate duties on products on their "inclusion The following countries grant GSP schemes: lists," with different transition periods applying to Australia, Belarus, Bulgaria, Canada, the European various sensitive products. Community, Japan, New Zealand, Norway, the Under an "early harvest" agreement, Russian Federation, Switzerland, Turkey, and the US. Thailand offers duty-free treatment to Cambodia Imports under the EU scheme accounted for about (as well as Laos and Myanmar) on products within $66 billion in 2002, while the US imported about 43 tariff headings, particularly on fish products, fab- $20 billion under its version. In 2001, Cambodia's rics, and garments. GSP exports were worth US$1142 million of a total AFTA does not only apply to tariffs, but to US$1374million. non-tariff measures, IPR, services, standards, rules Handbooks on the major GSP schemesprovide of origin, trade facilitation, and other trade policy areasonablyclearsummaryofcountriesandproducts areas. Insomerespects,itgoesfurtherthantheWTO covered, as well as the rules of origin applicable, rules and commitments. usually the most difficult aspect of GSP conditions. They can be found on the United Nations 5. CHINA Conference on Trade and Development (UNCTAD) website at: http://www.unctad.org/Templates/ AChina-ASEANFreeTradeAreaiscurrentlybeing Page.asp?intItemID=1421&lang=1 negotiated.Underan"earlyharvest"program,China provides duty-free treatment to Cambodia (along 3. EU­"EVERYTHINGBUTARMS" with Laos and Myanmar) on 297 products. The list includes mainly agricultural and fisheries items, but More recently, some Cambodian exports have been also some garments, footwear, and furniture coveredbyanewpreferentialdealintheEUforLDC's products. called "Everything but Arms" (EBA). This arrangement provides duty-free and quota-free 6. BILATERAL AGREEMENTS access to almost all the imports of least-developed countries. Unfortunately, the rules of origin used for From 1993 onwards, Cambodia concluded 24 EBA imports are restrictive, especially for the bilateral agreements that included MFN tariff Cambodian garment industry, which is not integrated treatment with 13 countries, notably, China, and currently relies extensively on imported inputs. Indonesia, Malaysia, Vietnam, Laos, Russia, the US, Other industrial countries, though not the US, the EU, the Philippines, and Thailand. Those have put in place similar schemes in favor of agreements with current WTO members are now, in least-developed countries. Included in the practice, largely superseded by the WTO accession declaration that launched the Doha Round was a terms.Thetextileandclothingtradeagreementswith commitment, by all WTO members, "to the the US and EU are covered in the annex on the gar- objective of duty-free, quota-free market access for ment industry. productsoriginatingfromleast-developedcountries". ExportingcompaniesinCambodianeedtodeal withvaryingmarketaccessconditionsacrosstheglobe. 4. ASEAN AND AFTA Thepracticeinthepasthasoftenbeentoshipproducts, usually in an unprocessed form, to neighboring Cambodia is a member of only one regional trade countries,andletmanufacturersandtraderstheredeal agreement: AFTA. Clearly the trading conditions with the complications of onward sales. If Cambodia operating within ASEAN will significantly impact wishes to secure the value added of direct sales, 32 The New Trading Environment: Opening Markets including for processed products, then local · Naturalrubberandrubberwaste10% companies will need to understand many markets. · Unprocessedorsemi-processedwood10% Unfortunately, determining duty rates is often · Sawn and shaped wood and wood sheets 5% asmallpartoftheoverallchallengeofunderstanding market conditions, as Chapter 8 explains. Export quotas and prohibitions exist to meet a variety of policy objectives. Consistent with WTO TAXES,CHARGES AND RESTRICTIONS ON EXPORTS exceptions, pharmaceuticals and medical materials require permits, and exports of narcotic drugs and During the accession negotiations, Cambodia was poisons are prohibited (a WTO exception is made questioned about its export taxes, charges, and for the protection of human health). The export of restrictions. These are generally discouraged by the round and sawn logs is prohibited, and wood WTO, even where they are not clearly contrary to the productsareunderquotatoprotectexhaustiblenatural WTO rules, since they tend to distort international resources. Weapons, explosives, ammunition, and trade.Forinstance,theycanunfairlyandunjustifiably military vehicles and machines are subject to non- denyaccesstorawmaterialsforforeignmanufacturers. automatic licensing, as they are essential security However, Cambodia did not agree to change its interests.Theexportofantiquesmorethan100years current practices, other than to implement them old is prohibited to protect national treasures. within the terms of WTO provisions. The main products subject to export taxes, and their Quotas restraining the level of rice exports were rates, are: removedin2001.However,CambodiatoldtheWTO · Cattleandpigsforbreeding10% itwishedtoretaintherighttoreintroducerestrictions · Livefishandfishproducts10% in the event of critical shortages of foodstuffs. · Shellfishandtheirproducts10% 33 34 8 Chapter The New Trading Environment: Dealing with Non-tariff Barriers Oncefavorablecustomsdutiesareidentifiedasmarket 43 WTO member countries. Cambodia itself does opportunities, other obstacles, called "non-tariff not use tariff quotas under the WTO, but barriers," will affect whether or not Cambodian agribusinesses exporters in Cambodia will often products succeed. WTO membership should prove encounter them directly or indirectly. especially useful in dealing with these barriers. The administration of tariff quotas is complex. In joining the WTO, Cambodia has had to take Like most quota systems, it is open to abuse; WTO on the requirements of a series of agreements on rules seek to prevent such abuse. Issues and non-tariff measures. Some, like customs valuation, complaints related to tariff quotas are regularly import licensing, and PSI, were outlined in Chapter discussed in the WTO's Committee on Agriculture. 5, and are important for the regulatory environment The current Doha Round negotiations are intended within Cambodia. But these rules, and a range of to provide new disciplines. others, also apply to Cambodia's main trading WTO members have different approaches to partners in the WTO. They should all act to restrict using tariff quotas. Nearly half of the WTO tariff the ability of WTO governments to block quotas do not, in practice, impede imports. They Cambodian imports unfairly. allow for unlimited quantities at the in-tariff quota The WTO deals with these practices by rate. Others are administered on a first-come, outlawing the use of quotas on imports and first-served basis in which imports are allowed to exports. Customs duties are the main legal form of enter the market, from all sources, at the in-quota protection, but there are two important exceptions, rate, up to the point when the quota is filled. Once in the garments and agricultural sectors. Until the that level has been reached, the out-of-quota duty is end of 2004, quotas on textiles and clothing could imposed. A third system involves the issuance of be maintained by the US, the EU, and Canada. licenses on a first-come, first served basis, while a However, at the end of 2004, the WTO Agreement fourth involves the issuance of licenses on the basis on Textiles and Clothing put an end to forty years or of historical market shares. A fifth approach is to more of quota restrictions in this sector. The impact auctionimportsharesorlicenses. of this change on the Cambodian garment sector is Tariff quotas are also commonly used in discussed in Annex D. preferentialarrangementsandfree-tradeagreements. AGRICULTURALMARKETACCESS AND TARIFFQUOTAS TECHNICAL STANDARDS ASA TRADEBARRIER The other permitted use of quotas is in the The second area in which non-tariff barriers can hit agricultural sector. These are termed "tariff quotas" Cambodianexportsistheuseoftechnicalstandards. because they allow a certain volume of access to the This is likely to be a big challenge for Cambodia as it market at a low or zero customs duty. All imports seeks to diversify its export base and its markets. Not outsidethetariffquotaaresubjectedtoamuchhigher only can national standards be difficult to meet in tariff, usually so high that imports cannot compete. themselves, but also the enforcement procedures to The system of tariff quotas in the WTO is in which imports are subjected can be onerous. placelargelytoensurethatveryhightariffscannotact Understanding which standards apply in which to eliminate imports completely. Around 1,400 tariff marketsisthefirststep;ensuringCambodianproducts quotasarecurrentlyinplaceaffectingaccessinabout meet those standards is the second. 35 Cambodia and WTO: A Guide for Business International agreements usually recognize a have been underway for several years in the WTO to difference between compulsory standards andvoluntary harmonizerulesoforigin.Whileclosetocompletion, standards. In the WTO, compulsory standards are these negotiations have faltered because of usually referred to as technical regulations. differences related to textiles and clothing and some However, to meet real market needs, Cambodian other product sectors. WTO disciplines on Rules of exporters will usually have to try to meet all relevant origin are described in Box 13, below. standards,whethertheyarevoluntaryorcompulsory. In doing so, a variety of testing, certification, and ORIGINCERTIFICATEFEES conformity assessmentprocedures,aswellasmutual recognition arrangements, need to be understood. A related issue in Cambodia is the issuance by MoC (See Appendix 3, The Role of Camcontrol) ofcertificatesoforigin(C/O).Asignificantnumber The potential for abuse is considerable, which of local exporters complain of time delays and iswhytheWTOAgreementonTechnicalBarriersto additional informal fees required to secure such Trade (TBT) is an important safeguard for certificates.Formally,certificatesoforiginareissued, Cambodian products. The Agreement sets out rules for a fee, for only garments and footwear. C/O Form for imposing and administering standards (see Box A (GSP) for over 2000 pieces and over 200 pairs is 14 on the next page). A similar agreement exists for available for US$50. C/O Form N (normal MFN) is food safety standards. This is explained in Annex issued for a US$30 fee for over 2000 pieces and over A1 on the agribusiness sector. 200 pairs. For consignments less than 2000 pieces The use of rules of origin in foreign markets and200pairs,theC/OfeeisUS$15(GSP)andUS$10 canbeverycomplicated.Theyareusedprincipallyto (MFN). identify the tariff treatment, for Cambodia, this is Certificates of origin on agricultural goods are often the preferential rate, to which a consignment issued free of charge. Other products need some of goods should be subject. The problems are certified proof of origin in order to qualify for GSP multiplied for goods composed of materials and or other preferential access. However, because there componentsfromdifferentsources,ormanufactured has yet to be any effective harmonization of rules in several different countries. This is often the case of origin among WTO members, particularly for Cambodian garments. for preferential tariff treatment, there is little The US, EU, and most other large markets uniformity in the standards applied or the proof operatedifferentrulesoforiginsystems.Negotiations required. Box 13: WTO Agreement on Rules of Origin The Agreement was drafted on the assumption that a further agreement would be reached on harmonized rules of origin throughout the WTO membership. This has not yet happened. In the meantime the agreement's disciplines, which do not apply to preferential trade regimes, require, for instance, that rules of origin: · Must be clearly defined and published promptly; · Should not disrupt or distort trade; · Should be administered consistently, impartially and reasonably; and, · Should be applied without discrimination. 36 The New Trading Environment: Dealing with Non-tariff Barriers Box 14: The WTO Agreement on Technical Barriers to Trade (TBT) The objective of the TBT Agreement is to ensure that compulsory technical regulations and voluntary standards, as well as the procedures for assessing conformity with them, do not act as unnecessary barriers to trade. This includes packaging, marking, and labelling requirements. The term "technical regulations" refers to mandatory standards, which Cambodian exportsmust meet.A "Code of Good Practice" appended to the Agreement covers voluntary standards. Where technical regulations use recognized international standards, these are assumed in the Agreement to not create unnecessary obstacles to trade. The standards developed by the following organizationsarecovered: · International Organization for Standardization (ISO) · International Electrotechnical Commission (IEC) · International Telecommunications Union (ITU) · Codex Alimentarius Commission (under the UN Food and Agriculture Organization) Technical regulations that are more demanding than the international standards are acceptable if they meet a series of criteria laid out in the Agreement. Technical regulations and voluntary standards: · must be applied without discrimination among foreign products; · must not be applied more stringently to imported products than to domestically produced products; and, · must be based on scientific and technical information. The Agreement also sets disciplines on conformity assessment procedures. The procedures must be transparent, with information easily available to foreign suppliers. They should not operate in a manner less favourable to imported goods than domestic products. Fees should be reasonable and testing arrangements should not inconvenience foreign suppliers or importers. It must also be possible for exporters to make and pursue complaints. WTO members are called on, wherever possible, to accept the conformity assessment results of other members, through mutual recognition agreements, in order to prevent the doubling up of the assessment burden on foreign exporters. Cambodian exporters can find national contact points, as required under the TBT Agreement, where the details of local technical regulations, voluntary standards, and conformity assessment rules can be sought at the following link: http://www.wto.org/english/tratop_e/tbt_e/tbt_e.htm. 37 38 9 Chapter Becoming Competitive, and Dealing with the Competition When it comes to competition, all WTO members that, and provides a variety of escape routes. For ask the same questions: Are we competitive with Cambodia, as for any other WTO member, the other suppliers to foiegn markets? If not, how do judgment on when, or if, to use such escape routes we become so? Can we cope with the force of will always be a fine one: a balance between the competition in our own market? If not, what can we interests of consumers, taxpayers, and competitive do about it? This chapter looks briefly at both of producers against those of the owners, managers, theseissues. and workers in local businesses. Businessexperience,aswellascommonsense, The issue of competitiveness is in its infancy in suggests that if an economy does not encourage Cambodia. The export base has been too narrow, competition internally, it is unlikely to generate too basic (dominated by garments and unprocessed products and services that will be competitive rice and rubber exports), and overwhelmed by externally. That is a simplification, of course. But, to smuggling. Nevertheless, even formal exports, aswell the extent that the WTO accession can promote as imports, have been growing strongly and consis- better regulation and more credible institutions, tently for the past five years or more (see Box 15 ). stimulate investment, and provide for transparent, Domestically,thereislittlebeliefinCambodia's open, and predictable trading conditions, then it will ability to diversify, to go up-market and seriously to also be provoking competition domestically. entertheglobalmarket.Manyforeignersaresurprised That should be good for consumers and for bythetendencyofCambodianstodismisstheirown investors. It will not necessarily always be welcome products, and to understate their capacity to to domestic producers. And when local producers compete. If Cambodians do not believe in their own get worried, so do politicians. The WTO recognizes products, why should buyers in other countries? Box 15: Cambodia's Trading Performance Cambodia's imports and exports have grown strongly over the past five years. The data below, from the International Monetary Fund, excludes re-exports. This means that, for instance, fabrics and yarns that are imported for the manufacture of garments, which are later exported, are not included. Cambodia's Formal Trade: Recent Results (US$,millions) 1999 2000 2001 2002 2003 Exports 997 1,283 1,462 1,638 1,960 Imports 1,490 1,849 2,010 2,228 2,524 Source: IMF Article IV Consultations with Cambodia, 2004 According to the Customs Department, 11 of Cambodia's 15 top export products in 2003 were from the garment sector. Rubber, footwear, and gold were the also significant items. Cambodia's main imports (in terms of customs value), in 2003, were textile fabrics, followed by oilproducts,cigarettes,pharmaceuticals,clothingaccessories,cement,andmotorvehicles. 39 Cambodia and WTO: A Guide for Business The reality is that Cambodia has much to offer. somewhat different regimes apply for industrial and It produces some of the best rice, fruit, spices, nuts, agricultural products. Until now, the textiles and and fish that can be found anywhere in the world. garments sector has had its own special rules: Many of these food items are produced without these were dismantled at the end of 2004. And chemicals. That makes them potentially high-value, China, in its 8-year transition period as a WTO up-market, "organic" products for major markets. member is subject to tougher conditions than The streets abound with craftsmen producing fine other members. furniture and handicraft items, many of which have One means of trade defense is simply to raise high export potential. Tourism is already thriving on tariffs. Even bound tariffs can be increased. the vast cultural wealth of Cambodia. However,theprocedureislong.Itinvolvesapotentially difficult negotiation with trading partners, in which BENEFITS OF MPLEMENTING ABOR TANDARDS I L S bindings on other products have to be reduced to compensate for those raised. Wages in Cambodia are low, but Cambodia has built When they believe they must take action against a reputation for enacting and observing international imports, WTO members usually have recourse to labor standards. These are significant factors for one of three principal trade defense instruments. inward investors, though the importance of neither Two of which could be loosely termed as actions should be exaggerated. Generally, Cambodia is a against unfair competition. The first of these is the relatively low-cost economy in an increasingly use of antidumping duties. These are duties added high-cost,buthigh-growth,region.Itisaninteresting to normal customs duties on goods said to be locationforinvestorsandoverseasbuyerstodiversify dumped.7 Dumping is not, in itself, illegal in the sources of supply and manufacturing. Cambodia is a WTO. After all, if foreign suppliers choose to cut beneficiary of many preferential trade arrangements. their prices, then consumers in the importing market The handicaps are massive, and someofthese usually gain. However, the WTO Antidumping have already been discussed in earlier chapters. Agreement(seeBox16)givesgovernmentstheright, Investors are not coming. With few exceptions, under strict conditions, to impose additional duties Cambodia is not trading in a serious manner. Only to offset the effect of dumping where it damages a the garment industry is truly organized to export. localindustry. Thenecessarycriticalmassofproductioncapacityand Another form of unfair competition is through quality control to make inroads into foreign markets the use of subsidies in the exporting country. Direct does not exist. Packaging, labeling, and branding are exportsubsidiesarebannedintheWTOforindustrial inadequate. Infrastructure is also inadequate. goods, although, not yet, for agricultural goods. However, WTO accession can only be based Other types of subsidies that meet certain criteria are on a conviction that the country can be part of the permitted, including subsidies that are generally global economy. For many businesses, it will mean, available,alsocallednon-specific,acrossaneconomy. over time, a complete reorientation of strategy and In other words, they are not directed at particular ambition. The defense of niches in a small domestic industries or firms (see Box 17). market will, for some, have to be converted into A range of subsidies, those that fall between higher-risk strategies of investment (perhaps with the two extremes, can be challenged in the WTO. foreign partners), combined with product and Products that benefit from these actionable market development. subsidies can also be penalized in importing markets through countervailing duties added to normal TAKINGSOME OFTHE HEAT OUTOF COMPETITION customs duties. The countervailing duty should cancel out the effect of the subsidy on competition In practice, the WTO tends to distinguish between in the importing market. The rules for imposing such "fair" and "unfair" competition. Moreover, duties are set out in a WTO agreement. 7Dumped imports are, broadly, goods sold in the importing market at prices below those in the exporting market. 40 Becoming Competitive, and Dealing with the Competition Box 16: WTO rules on antidumping duties The WTO rules on imposing antidumping duties are very complex. They provide scope for protecting a domestic industry while avoiding abuse. Goods can be regarded as "dumped" when the export price is below the price charged in the producer's market. If there is no domestic market, then other comparisons can be made or a "constructed"domesticpricecalculated. An antidumping duty can only be imposed if the domestic industry, producing the same product, has been materially injured, or is likely to be. Further, a causal link must be established between the dumping and the injury. Procedural rules require that in investigating claims of damage through dumping, all interested parties have a right to make their case, including the exporting industries accused of dumping. However, exporting industries also have an obligation to cooperate with the investigating authority by providing the necessary information on which calculations of any dumping margin (the difference between the import price and the domestic-market price in the exporting country) are based. Provisional measures can be put in place prior to a final determination of both dumping and the dumping margin, for each exporter of the product concerned. Suppliers can avoid paying anti-dumping duties by accepting to increase their export prices. If definitive duties are put in place, they should be kept under review. The sunset clause stipulates that antidumping duties should normally terminate automaticallyafterfiveyears. Box 17: Subsidies and Countervailing Duties Direct subsidies dependent on export performance, subsidized inputs into exported products, and tax breaks related to exports, are clearly prohibited. All such subsidies should have been eliminated; if not, they can be challenged in the WTO dispute settlement system. All other subsidies are, in principle, permissible. However, they fall into two categories: those that are "actionable," and those that are "non-actionable". Non-actionable subsidies include "non-specific" subsidies that are generally available across the economy, and do not favour particular industries or firms. In addition, assistance to disadvantaged regions, or to small and medium-sized enterprises, private sector research, and support for investment in environment-friendly production facilities are also likelytobenon-actionable. If a subsidy is specific, for example; to an industry, a company, or a group of enterprises; then it will be actionable. That means that a WTO member may challenge the subsidy under the dispute settlement rules, or, if there is material injury to a domestic industry, impose a countervailing duty. The conditions and procedures contained in the WTO "Subsidies Agreement," for imposing countervailing duties on subsidized imports, are much like those for imposing antidumping duties (see box 15). The key issue tends to be whether a subsidy is prohibited, "actionable," or "non-actionable". It is then necessary to determine whether or not subsidized imports are damaging the domestic industry producing the same product. Only then can a countervailing duty be calculated and imposed. 41 Cambodia and WTO: A Guide for Business companies seeking them, and to governments ALIMITEDDEFENSE AGAINST AIR OMPETITION F C imposing them, can be very high. Often they have to be defended in the WTO, as they are frequently The third mainstream trade defense instrument is challenged through dispute settlement proceedings. the safeguard measure. The WTO Agreement on And, always, the interest of consumers in securing Safeguards (see Box 18 below) applies to goods that access to cheaper goods needs to be kept in mind in may be traded fairly, but are building up in the poorcountries. market so quickly and unexpectedly that they are During its accession negotiations, Cambodia damaging a domestic industry, or, at least, threatening told other WTO members that it intended to put in to do so. The disciplines on using safeguards are very place the necessary laws, regulations, and machinery tight, and duties or quotas can only be temporary. to make use of antidumping, countervailing, and While developing countries are making safeguard measures in the future. The relevant increasing use of these instruments, the costs to legislation has yet to be brought to the National Assembly. Box 18: The Use of Safeguard Measures Governments can put in place safeguard measures, normally duties, but quotas are also possible, where government determines that imports are building up at such a rate that they are causing, or threatening, serious injury to domestic producers. All interested parties should be able to present their views in an investigation, and the wider public interest, such as, the impact on consumer prices, should be taken into account. Normally, safeguards are put in place for four years. This can be extended to eight years; ten years for developing countries. If a measure is put in place, then the protected industry must be required to adjust to the competitive environment that will emerge once the protection is removed. If quotas are introduced, they should normally be allocated in a non-discriminatory fashion among all suppliers. However, if imports from one or more countries have increased disproportionately, then the quota restraint can be applied only to those countries. The country imposing the safeguard is required to offer compensatory trade benefits to those suffering the impact. In the absence of agreed compensation, the exporting countries have some limited rights, in time, to remove trade benefits from the importing country. Developing countries should not usually be covered by safeguard measures if their share of the relevant market in the importing country is less than 3%. 42 Annex A1 Agribusiness: General Cambodia possesses many agricultural assets, and agricultural commodities through smuggling. The the potential for turning them into successful export raw materials of some potentially valuable export ventures is considerable. For some important sectors are being lost for simple reasons:neighboring products, the loss of good quality agricultural countries have processing capacity for many commodities through smuggling is the biggest commodities, and often a shortage of feedstock; and, challenge. High domestic costs, poor infrastructure, police and customs services at the borders are administrative inefficiencies, as well as a lack of limited and prone to informal procedures and investment in processing capacity, all discourage payments. formaltrade.Farmersandwholesalersoftentakethe The costs and administrative burdens of easiest option; selling to traders from neighboring formal exporting are too high. It is not surprising, markets who are able to bear the informal costs of therefore, that many Cambodian farmers and movingcommoditiesoutofCambodiaforprocessing wholesalers are content to use informal trade routes. and onward sales. The regulatory reforms that WTO Processorsofrice,soybeans,sesameseed,orcashew membershiprequires,andpreferentialmarketaccess, nuts in Vietnam, for instance, are prepared to send should improve the situation. The global trading boats or trucks into Cambodia to collect orders, pay environment, however, is improving only gradually cash, and meet all the informal costs of transporting underWTOrules.Hightariffbarriers,complexquota consignmentsbackacrosstheborder. regimes, and foodsafetyrequirementswillneedtobe Processors in neighboring countries are happy understood to take advantage of new opportunities. topayrelativelyhighpricesforrawmaterials.Afterall, Agribusiness groups should look closely at the they are securing access to high-quality commodities Doha Roundto improve conditionsfurther. that, in processed form, command premium prices Annexes A2-A8 discuss the opportunities for a in their domestic and export markets. Often, few representative agribusiness products. The Cambodian consumers end up paying those common theme is that the WTO can help, but its premium prices for products that originated on influence will be limited initially. Success will mostly Cambodian farms and plantations. The loss of depend on a big change in traditional attitudes and agricultural production through smuggling and businesspractices. corruptpracticesmakesitdifficulttoreachthelevels The following comments about agribusiness in of output, and therefore the economies of scale, that general concern three sets of issues: informal and might make exporting viable. illegal trading practices, competitiveness and quality, Theseproblemsareabighandicapforacountry and how the WTO may affect each of them. The joining the WTO with a view to becoming a small, annex also describes in more detail how the WTO but successful, player in world agribusiness trade. It rules apply to farming globally, and how current may be that Cambodia will remain only part of the negotiations under the "Doha Round" may be of production/marketing chain for products that are benefit to Cambodia. finally exported from Thailand, Vietnam, or China. However, even if that is the case, Cambodian THEINFORMALSECTOR: agribusiness products should command a fair price. LOSINGEXPORTPOTENTIAL TO MUGGLING S Long-term, Cambodian food items need to be recognized in international markets as quality The most serious challenge to the agriculture products, returning a fair price to growers and sector in Cambodia is the large loss of high-quality processors in Cambodia. 43 Cambodia and WTO: A Guide for Business EarlierchaptersdiscussedtheroletheWTOcan type shouldend withWTOaccession,butmaintaining playinpushinginstitutionalreformsandtransparency prohibitively high duties on spare parts will remain a in trade regulation. The government has new problem if there is no additional tariff reform. For programs intended to eradicate smuggling. Customs the present, spare parts are smuggled in from reform will take time, but could be encouraged and Vietnam, where the import duty on the same diesel assisted by international agencies. It may be further parts, from China or Japan, may be 5-20%. helped by new rules on trade facilitation now being Customs valuation issues for farm inputs and negotiated in the Doha Round (see Chapter 4). machineryimportsarealsoacommonproblem.Both Ultimately, Cambodian farmers will need to be arbitrary and rigid valuations are sometimes adopted convinced that they will be better off pooling and for the same importers, despite differences in marketing their produce through formal, rather than consignments. Over time, the adoption of WTO informal, channels. disciplines(seeChapter5)and trade facilitator reforms willresolvetheseproblems. INVESTMENT AND NPUT I COSTS VAT also poses problems for investment in processing plants. The Ministry of Economy and With or without smuggling, raw commodities will Finance is required to reimburse VAT on machinery not be processed in Cambodia while there is so little imports within three months of importation, but capacity.Investmentisverylow.Whatexistingcapacity does not always do so. there is has often been financed directly by mill and factory owners. Because of inadequate and/or costly QUALITY AND THE NEEDS OF EXPORTMARKETS financial services, farmers find it difficult, or impossible, to finance even the relatively minor As explained later in this annex, WTO can protect investments necessary to improve yields or diversify Cambodian exporters from the abusive use of food into new crops. Commercial bank loans, where they safety standards in overseas markets. However, that are available, require interest payments of 12-24% a does not mean the quality expectations of buyers in year, while micro-finance rates and informal loans major markets will not be high. can reach 44%. Chapter 6 explains the potential Cambodia could produce first-class agricultural impactoftheWTOontheinvestmentenvironment, products. Through investment and a sharp reduction includingintheareaoffinancialservices.Intheshort in smuggling, Cambodia may have the capacity to term, novel means of raising capital will, no doubt, consistently meet the demands on which long-term continuetobeexplored.However,amajorbarrierto contractual trading relationships are based. Serious securing finance is the absence of land titles for producers in Cambodia are already adopting quality- farmers in Cambodia. control measures, and technical assistance programs Inward investment in the agribusiness sector are in place, or planned, to enhance standards. would be welcome. Unfortunately, the costs of Consumers in the US, the EU, Japan, and other businessinCambodia,asseveral"valuechain"studies developedmarkets,areincreasinglyinsistingon"safe" haverevealed,discouragesinvestors.Forprocessors, food that does not contain toxic residue, and has fuel and electricity costs, for instance, are excessive. been properly safeguarded against disease and Forfarmers,otherinputslikeseeds,chemicalfertilizers, mishandling. They also want products that do not and even limited supplies of pesticides are too entail cruelty to animals or environmental damage in expensive as formal imports, so they are smuggled. theirproduction.Manyarepreparedtopayhighprices The costs of simple farm machinery are also to eat so-called "organic" products . disproportionately out of line with competitors in In this respect, Cambodia has a potential neighboringcountries.Importdutiesfortractorsand advantageoverothersuppliers.Sincefewcanafford diesel engines are quite low. But spare parts for the to do so, farmers tend not to use chemical fertilizers sameitemscanattractdutiestwiceashigh,andbehit or pesticides. Properly monitored and certified, their by an additional "specific tax" of 25%. The total products have the potential to be marketed as officialtaxtakeatthebordercanreach50%ifVATis organic, and will have the additional selling point of included. For the most part, specific taxes of this tasting good. This does not mean they are likely to 44 Annex A1 - Agribusiness: General take a large share of imports in any market, but it First, almost all the quota restrictions and does open up the opportunities for securing high- similar schemes that existed before 1995 were turned valueniches. into tariffs. The tariffs are now largely bound (see This also depends on marketing, packaging, and Chapter 7), as for industrial goods, for each WTO the physical transport and stocking of perishable member. So exporters at least know for sure the products.Cambodiahaslittlecapacityforpackaging highest customs duty to which their products will to the standards required in advanced markets. Nor be subject. does it have significant refrigerated storage Unfortunately, in making the transformation, or transport, outside of Phnom Penh and some of the tariffs turned out excessively high, and Sihanoukville (which needs upgrading). The in some cases, so high that no imports would have necessaryinvestmenttocreatesuchinfrastructuremay been able to enter the market. In such cases, the come, long-term, from the marketingofCambodia countries concerned were required to offer some as a producer of high-quality food products. minimum access at low tariff rates, or access equivalenttoimportlevelspriorto1995.Itwasthese GLOBAL AGRICULTURAL TRADE: UNFAIR BUT arrangementsthatledtothe"tariffquotas"explained IMPROVING in Chapter 8. The second pillar of reform concerned domes- While opportunities for trading in industrial goods tic support for farmers. This is the biggest area of arenormallyclearandcompetitionrelativelyfair,that agriculturalsubsidiesinthedevelopedmarkets.These cannot be said of agricultural trade. Market access programs were divided into three classes. The first barriers are often high, subsidies in developed concerned subsidies considered not distorting to countries distort markets seriously, and food safety internationaltrade;principallydirectpayments,made standards are increasingly complicating export to farmers to support their income, not dependent opportunities for poorer suppliers. onwhattheyproduce,orthepricesatwhichtheysell Theessentialproblemisthatfornearlyfiftyyears, (called de-linked or decoupled payments). It also farm goods were excluded from the normal included research, environmental, and regional disciplines of world trade. GATT, the WTO's assistance programs. These subsidies are permitted predecessor,maintainedaseriesofspecialconditions and are sometimes called Green Box payments. that permitted the growth of subsidies, and high The second category of domestic support, put and unpredictable market protection. The result was inplacetocovertheEU'sCommonAgriculturalPolicy to make the world market for many important (CAP), is called Blue Box support. The Blue Box is products completely artificial. supposed to contain payments made to farmers on These special rules allowed the European condition that they limit their production. These Community to develop its complex systems of payments only have a small effect on international market protection, domestic subsidization of trade, so they are currently permitted in the WTO. farmers, and export subsidies called the "Common The value of all other domestic support AgriculturalPolicy"(CAP).IntheUS,theysheltered programs, for each WTO member, were calculated long-standing farm subsidy programs. Japan, and then subjected to a series of cuts over five years. Switzerland, the Scandinavian countries, and most These "Amber Box" reduction commitments are other developed countries, were able to maintain scheduledintheWTO,andarethereforebinding. highly protected agricultural sectors. The third pillar of reform was a commitment to cut direct export subsidies. These are assumed to THREEPILLARS OF GRICULTURAL RADE A T REFORM cause the most damaging distortions of global commodity markets. Those countries using export With the end of the last round of global trade talks, subsidies at the end of the Uruguay Round were the Uruguay Round, and the establishment of the required to bind and reduce them in stages over five WTO in 1995, the deteriorating situation was years.CountriesnowenteringtheWTOarenormally stabilized and has begun to improve. Reforms were obliged to give up any right to use export subsidies put in place under three pillars. in the future. This was the case for Cambodia. 45 Cambodia and WTO: A Guide for Business DISCIPLINES ON OOD AFETY TANDARDS F S S DOES THE WTOMATTER FOR AMBODIAN C AGRIBUSINESS EXPORTERS? One other major change was an agreement on food safety standards called the Agreement on the Cambodian companies may be tempted to conclude ApplicationofSanitaryandPhytosanitaryMeasures8, that none of these complicated rules and agreements which complements the TBT Agreement. This will make much difference to their export prospects, agreement provides safeguards on the abuse, as but this assumption is incorrect. unreasonable barriers to trade, of measures relating It is true that two important local markets, Laos to human, animal, and plant health and safety. The and Vietnam, are not members of the WTO. agreement must be implemented in Cambodia, and However,theyarenegotiatingtheiraccession,andare will be of practical importance to exporters in the subject to the same pressures for reform at their agribusiness sector. The main provisions are borders and within their national institutions that outlined in Box A1.1, below, together with contact have been directed at Cambodia. details where Cambodian companies can find It is also true that a large amount of agribusiness informationonSPSmeasuresintheirexportmarkets. trade is now conducted with fellow members of (Also see Appendix 3, The Role of Camcontrol.) ASEAN. However, in time, AFTA will place similar, Box A1.1: The WTO's SPS Agreement on Food Safety Standards The agreement encourages the use of internationally recognized food safety standards. However, WTO members may put in place measures leading to higher levels of protection of human, animal, or plant health and safety if there is a clear risk. Guidelines for assessing risks are detailed in the agreement. Measures can be introduced on a provisional basis as a precautionary measure where there is believed to be a short-term public health risk, but no conclusive scientific evidence. UnliketechnicalregulationsundertheTechnicalBarrierstoTradeAgreement,SPSmeasurescanbe directed at specific countries rather than being applied on an MFN basis. This is especially the case if particular animal- or plant-borne diseases threaten a WTO member. However, there should not be arbitrary or unjustifiable discrimination among countries where similar conditions prevail. All WTO members are required to notify the WTO of new SPS measures, as well as publishing them locally. The notifications are sent out by the WTO to all members. In the case of Cambodia, the National Codex Committee is in the process of establishing a library for such notifications. The network of SPS enquiry points put in place by other WTO members may be of most practical value to Cambodian exporters. Contact details can be found in the list of enquiry points at the following link: http://www.wto.org/english/tratop_e/sps_e/sps_e.htm Alternatively, the list is available at the National Codex Committee: Address: Cambodia Import-Export Inspection and Fraud Repression Department Ministry of Commerce N. 50, Street. 144, Phnom Penh Fax: 855 23 42 6166 Email: camcontrol@camnet.com.kh For additional contact information, see Appendix 3. 8"Sanitary" refers to animal and human health while "phytosanitary" is the term for plant health. 46 Annex A1 - Agribusiness: General or possibly more severe, pressures on its members The following annexes attempt to illustrate the than WTO to reform. Most members of ASEAN opportunities available in some representative are also WTO members, and must observe its agribusinessproductsectors,andthespecificelements disciplinesevenwithinthefree-tradearea.Thesame of the WTO that will help or hinder Cambodian goesforChina,whoseaccessiontermswereparticularly exporters. tough.Theattentionofdevelopedcountrymembers ofWTOonreformprogressandtheimplementation SOURCES AND RACTICAL NFORMATION P I of commitments in China will continue to be intense. 1. "Assessment of the Agro-Industrial The WTO is steadily enforcing change on Situation in Cambodia", February 2003, developed countries, however, whose subsidized PRASAC II Support Programme farmsectorshavebeenpushingcompetitiveexporters outofkeymarketsfordecades.Thesepracticeshave 2. "Towards a Private Sector-Led Growth often displaced efficient farmers from foreign Strategy for Cambodia", June 2003, The marketsanddraggeddownworldprices.Poorfarmers World Bank and Global Development indevelopingcountrieshavesufferedthemost.Some Solutions LLC of the worst examples, for example sugar, dairy products,beef,cotton,andwheat, arenotsectorsin 3. WTO rules on agricultural trade: which Cambodia is active. But there are few http://www.wto.org/english/tratop_e/ agricultural commodities in which government agric_e/agric_e.htm intervention is not distorting markets somewhere. Further, Cambodian agribusiness exporters are 4. "Agriculture and the WTO ­ Creating a already affected by the impact of preferences and Trading System for Development", 2004, free-trade agreements outside the region. As these The World Bank & Oxford University arrangements proliferate, and given that Cambodia Press will probably benefit from very few of them, the manner in which they are overseen by the WTO may 5. WTO negotiations on agriculture (the beimportant. Doha Round): http://www.wto.org/ The potential loss of preferences by developing english/tratop_e/agric_e/negoti_e.htm agricultural exporters has itself become a sensitive issue in the current Doha Round of WTO 6. Foodsafetystandards­notificationstothe negotiations. Yet Cambodian agribusiness exporters WTO: see Box A1.1 may have much more to gain from another major set of tariff reductions across the world than the 7. WTOtariffschedulesandappliedcustoms protection of preferences in which they do not have duties: see Appendix ­ General Informa- a stake. tionSources TheDohaRoundshouldseeafurthersignificant reduction in domestic agricultural support programs. 8. International agribusiness production and Most important, there is now a commitment to tradeforecasts,UnitedStatesDepartmentof negotiate the complete elimination of export Agriculture (USDA):www.ers.usda.gov/ subsidies, and other unfair support to exports. This Briefing/Baseline/trade04.htm will open up many markets to competitive exporters, rather than those supported by government finance. 9. EU Commission Agriculture Directorate All this should make the WTO a key element in agriculturalmarketsforecasts2003-2010 : the trade and investment strategies of the http://europa.eu.int/comm/agriculture/ agribusiness sector, even if its short-term impact on p u b l i / c a p r e p / p r o s p e c t s 2 0 0 3 / exports is relatively small. index_en.htm 47 48 Annex A2 Agribusiness: Rice Cambodia's chances of returning to its status as a Table A2.1 Major Rice Importers in 2002 major rice exporter are limited. Thailand and Country Quantity Vietnam now dominate the global market. Large (Thousandmetrictons) quantitiesofCambodianpaddyrice are smuggled to Vietnam for milling and onward export. Only one EU(15) 2,120 Cambodian rice mill can operate to export standards, Indonesia 1,970 and its products have proved themselves in Nigeria 1,250 developed country markets. Philippines 1,200 With more investment in modern rice mills, Bangladesh 940 Cambodiacouldofferlargerquantitiesofgood-quality Iran 870 specialtyricetoaninternationalmarketthatisgrowing Senegal 790 in sophistication. This would increase international SouthAfrica 760 recognition that Cambodian products can meet high Saudi Arabia 670 standards. The WTO has yet to bring openness and Japan 650 fairnesstointernationalricemarkets,butpreferential Brazil 560 arrangements like the EU's EBA areopeningdoors Cuba 550 fortheworld'spoorestriceproducingnations. Malaysia 500 US 410 THEWORLDRICEMARKET Source:FAOSTAT2004 United States Department of Agriculture (USDA) USDA estimates for 2004 imports show a estimations show world production of rice at 405 marked change over 2002, with Bangladesh imports millionmetrictons(milledequivalent)for2004-2005. at 500,000 metric tons, Malaysia at 650,000 metric This is 5% above 2003-2004, with China taking the tons, Saudi Arabia at 1.15 million metric tons, biggest share of the increase. Nevertheless, the 2004- Indonesia at 1 million metric tons, and Mexico at 2005projectionisstill1%lowerthantherecord1999- 55,000 metric tons. China, a small importer in 2002, 2000 crop. World consumption is expected to be is expected to import 700,000 metric tons in 2004, around 417 million metric tons, with end-year global despiteitsincreasedyieldsandacreage. stocks at 71 million metric tons, down 15% from USDA projections for 2005 suggest further 2003-2004. China's 12% increase in production is volatility. China is expected to import only 600,000 the first since 1997-1998, and is expected to have a metric tons, the Philippines' imports will increase significant impact on world trade and prices. from 300,000 metric tons in 2004 to 600,000 metric Only about 6% of world rice production is tons, Cuba will increase to 700,000 metric tons from traded;whichequatestoabout25millionmetrictons 550,000 metric tons, and US imports should rise by expected in 2004. Small variations in domestic 10,000 metric tons to a record 480,000 metric tons. production in major consuming countries can It should be stressed, however, that these are severely impact global trade and prices. Table A2.1 among the largest importers. All developed shows the largest importers of rice in 2002. The countriesandmanydevelopingcountriesimportrice. statistics include paddy, husked, broken, and milled Thus, if Cambodia is able to process and export rice. Most imports are of indica rice, with Japan more of its high-quality rice varieties, it may find importing japonica, notably from the US. nichemarketsinmanyplaces.Forexample,in2002, 49 Cambodia and WTO: A Guide for Business according to FAOSTAT, the Database of the UN four years. At the time of writing, Thailand's 5% Food and Agriculture Organization, Switzerland broken, parboiled rice was fetching $234 per metric imported94,000metrictons,Canada250,000metric ton (measured Free on Board, or f.o.b.; the price of tons, Australia 62,000 metric tons, and Norway an export at the port of departure) and Vietnam's 19,000 metric tons. Consumer tastes are increasingly 5% broken at $226 per metric ton. With US supplies diversified in all of these countries, with Basmati, tighter in 2004, prices of US products are ThaiJasmine,andotherspecialtyricebecomingmore significantly above those from Southeast Asia. US andmorepopular.Organicbrandsarealsoattracting southern long grain regular milled white rice (4% consumers and large ethnic Asian communities in broken)wasquotedat$397permetrictoninJuly2004. developed countries are also seeking out their tradi- Thai Jasmine rice was fetching $395 per metric tionalricevarieties.Further,itappearsthatindustrial ton during the same period. At the top of the countryconsumersarepreparedtopayrelativelyhigh market, Indian Basmati rice was selling at $850 per pricesforwell-brandedricetypes. metric ton. WHO ARE THE BIGPLAYERS? WTOANDTRADINGCONDITIONS INTHE LOBAL ICE G R MARKET Thailand remains the world's largest rice exporter, accounting for 25% of global trade with itsindicaand TheWTOhasbeenlesssuccessfulinbringingorder premium jasmine varieties. Vietnam was the second and openness to the rice market than almost any biggest exporter in the late 1990s, before being other market. The sector is heavily protected and overtaken by India. Table A2.2 shows the major subsidized, hence the relatively low level of exportersin2002. international trade compared with demand. Further, Table A2.2 Major Rice Exporters in 2002 Country Quantity World market share (Million metric tons) (Percentage) Thailand 7.34 27.7 India 5.05 18.35 US 3.27 12 Vietnam 3.24 12 China 2.07 7.5 Pakistan 1.68 6.1 World 27.52 100 Source:FAOSTAT2004 The USDA predicts that Thailand's rice exports will market access conditions can change rapidly and reach a record 9 million metric tons in 2004. That frequently. The following paragraphs describe the level is expected to decline in 2005 as shipments trading environment in relation to the WTO rules increase from Myanmar, the US, Australia, Vietnam, outlined in Annex A1 and in the initial chapters in the EU, Argentina, and Uruguay. this guide. It is worth noting that in 1964-1965, Cambodia, The especially difficult conditions in the rice then described as the "rice bowl of Southeast Asia", markets owe a lot to the political sensitivity of the exported in excess of 500,000 metric tons of rice. product.Governmentsdonotwanttobeconsidered putting rice-growing traditions, which often retain PRICE TRENDS INTHE NTERNATIONAL I RICEMARKET an almost religious significance, at risk. Nor have they been prepared to see their national food security in Despite declining stocks and lower supplies, world terms other than the capacity to grow enough prices have tended to stagnate over the past three to domestically to feed the population. 50 Annex A2 - Agribusiness: Rice Thus, bound tariffs on rice in key markets are are sheltered from reduction commitments in the usuallyveryhigh,oftenover100%.Specialtreatment WTO. The US has a range of domestic support onmarketaccessappliesparticularlytoJapan,Korea, programs, which it considers to be covered by the the Philippines, and Taiwan which have all avoided "Green Box". Some of these programs have been the "tarrification" of the rice sector by providing challenged through the WTO's dispute settlement access through tariff quotas amounting to 8% of procedure. their consumption (at the WTO base period). Food safety, and therefore the SPS rules, is Appliedtariffsvaryconsiderablywithrespectto seldom a major issue in the rice trade. However, the the bound rates, moving up and down depending WTO rules on IP protection may well turn out to be on domestic and international market events. highly relevant for some rice producing countries for Apartfromthefourcountriesmentionedabove, two reasons. First, there is concern over the danger tariff quotas operate, under WTO commitments, of biopiracy in which the genetic structures of for the following markets: Colombia, Costa Rica, specialty rice, like basmati, Thai jasmine, and, Indonesia,Morocco,Thailand,andVenezuela.China perhaps, Neang Mali and other strains grown in also opened a large tariff quota when it joined the Cambodia, may be replicated and marketed as the WTO in 2002. The Chinese quota allows in up to 4 original varieties elsewhere. Second, there is the million metric tons a year at a 1% duty rate. Other uncontrolled use of names on products that are not quotas are less friendly, with even the "in quota" produced in the countries of origin, for example, tariff hitting 80% for Colombia, 90% for Indonesia, basmati rice, which is originally from India and and 177% for Morocco. In these circumstances, the Pakistan.Effortshavebeenunderway,ledbytheEU, only way of securing competitive access to markets is to secure protection for geographical indications, throughpreferentialtariffs. similartotheprotectionprovidedunderWTOrules Other tariff quotas operate within preferential for wines like Burgundy and Champagne, which arrangements,notablytheEUandUSGSPschemes. comefromspecificregionsinFrance.Theproposalis For the rice sector, not only are market access strongly opposed by many agricultural exporters as conditions difficult and changeable, the import being an unjustified form of market protection. regimes are often managed by state trading enterprises. These can be non-transparent, arbitrary, TRADINGCONDITIONS INTHE REGION and, sometimes, corrupt. The Doha Round negotiations are intended to lead to negotiated The market access conditions for rice in ASEAN are improvements in the management of tariff quotas almostascomplicatedasthoseundertheWTO.Rice and the operation of state trading enterprises. iscoveredunderAFTAtermsforsensitiveproducts. This applies to Indonesia, Malaysia, the Philippines, FEWEXPORTSUBSIDIES,BUTCLAIMS OF DUMPING Vietnam, and Cambodia itself. THROUGH OOD ID F A Indonesia has bound an MFN rate for rice at Rp. 430/kilo. Malaysia, as a large importer, offers Perhaps surprisingly, the rice sector is largely access at a zero CEPT rate (although importers need unaffected by the use of export subsidies. India uses permission from the Malaysian authorities to secure them, but few suppliers have ever come close to the thisrate).Singaporeistarifffree.Thailandhasabound ceilings imposed at the end of the Uruguay Round. rate at B3.00/kilo and a CEPT applied rate at 5%. On the other hand, the US uses subsidized export VietnammaintainsMFNboundratesat40%or50% credit schemes to help its rice exporters, and is (for parboiled rice) with its 2004 CEPT rate applied sometimes accused of dumping commodities as at 15%, reducing to 5% for 2005. food aid. Rice is not included in the duty-free list under Large amounts of domestic support are the "early harvest" arrangement with China. channeledtoricegrowersindevelopedcountries.To Apart from tariff protection, a number of support farm incomes during a period of low world countriesintheregionusesubsidiesandgovernment riceprices,theEU,Japan,Korea,andMexicohaveall purchasestomaintaindomesticpricesforricefarmers, useddecoupledproduction-limitingpayments,which including Thailand, India, and Vietnam. 51 Cambodia and WTO: A Guide for Business CAMBODIA INTHE NTERNATIONAL I RICEMARKET At the same time, given the evolution of consumer tastes, the marketing of specialty rice In the near term, Cambodia is unlikely to regain the brands will likely favor the development of position it enjoyed in the 1960s and before. For a Cambodian products if the quality of its rice varieties start, too many of the tariff quotas that dominate is more generally recognized. These high-value access conditions now are allocated on the basis of markets are less dependent on preferences, and less previousperformance,intherecent,notdistant,past. affectedbytheinstabilityofworldmarketprices.The Thus, even if it developed the necessary processing marketing of Cambodian brands as organic may also capacity,asabulksupplierofprocessedrice,prospects increaseopportunities. for Cambodia would be limited. Some preference schemes will offer opportuni- IS CAMBODIA CAPABLE OF BENEFITING FROMTHE ties, however. Notably, under the EU's EBA OPPORTUNITIES? arrangement, rice is one of three commodities subject to a delay in complete duty-free, quota-free Much has been written about the Cambodian rice treatment. In the period until September 2009, sector: the need to modernize, invest in milling expanding zero-duty tariff quotas will be used to capacity,createadequateinfrastructurefortransportand steadily improve access. storage,organizefarmersandthecollectionofpaddy The EU has reported that from 2006-2007, rice, eradicate illegal fees, develop marketing and tariff reductions for the LDCs under EBA will start branding, etc. Yet Cambodia is a large producer of boosting rice imports. By 2009-2010, 80% of EU rice: 4.1 million metric tons in 2002. rice consumption (1.7 million metric tons of 2.1 Trading relationships with neighboring million metric tons) will be met by LDC imports countries are evidently crucial. The Cambodian (together with Basmati rice from India and Pakistan). Development Resource Institute (CDRI) estimates Thus, countries like Cambodia are expected to that almost 500,000 metric tons of paddy rice was displace not only traditional EU suppliers like smuggled across the Thai and Vietnamese borders Thailand, but most domestic producers also. in 2002. In 2004, traders on the Cambodian side of Thai exporters to the EU have enjoyed a theborderreceived$135permetrictonofpaddyrice substantial duty-free quota covering white, brown, from Vietnamese buyers, who have been seeking and broken rice. Outside the quota, Thailand pays increasingly large quantities. These buyers collect the fullthird-countrydutyrates.Theserateschangedon product, transport it down the Mekong, and pay all 1 September 2004 as a consequence of the reform of the informal costs necessary to get the product into theEUricemarketorganizationundertheCAP.From Vietnam. that date duties were set at 65/metric ton for brown CDRIsaysthatthelosttaxrevenuein2002from rice, and 175/metric ton for white rice. However, rice smuggling was $7.5 million. The economic under WTO rules, these changes were subject to impact is much greater, due to the loss of value- negotiations between the EU and its principal added from milling, and the cost of subsequently suppliers, namely, India, Pakistan, the US, and re-importing rice to meet local consumer demand. Thailand. The EU reached an agreement with India This is not to say that if the current informal and Pakistan, in July 2004, which allowed duty-free flows of paddy rice out of the country were to be treatment for Basmati rice. At the time of writing, eradicated, that formal trade in paddy, or partly agreements had not been reached with Thailand or processedrice,shouldnecessarilybediscouraged.If theUS.Clearly,anyreductioninduties,orexpansion VietnamandThailandhavecaptivemarketsglobally, of duty-free quotas, for Thailand might affect the then there may be plenty of value for Cambodian potential for Cambodian exports to the EU. farmers in leaving some processing of Cambodian It may be expected that the US and other rice to those countries. However, there must be industrialcountrieswillbroadentheirownpreferential considerable scope for increased processing for the arrangements for the world's poorest countries, but domestic market. markets like Japan, and, to an extent, the US, will Direct exports of fully processed Cambodian remain difficult in the rice sector. rice can build up only slowly. The single rice mill 52 Annex A2 - Agribusiness: Rice capable of producing for export has demonstrated rice products bound at 7%. The AFTA rate of 7% is the potential for Cambodian rice strains, especially currently being applied as the MFN duty for all those sought by Asians living abroad. Exports to suppliers. VAT at 10% is also payable at the border. China, Hong Kong, Australia, Germany, Italy, and France may be followed by contracts with the US. SOURCES AND RACTICAL NFORMATION P I The company reckons that 4-5 new mills are needed to meet market demand. It also needs a Various sources of information are available on the better-organizedcollectionofpaddy.Already,growers state of rice markets, international prices, quota associations representing 6000 families, farming conditions, IP issues, and regional and multilateral 60,000 ha, are supplying the single mill; this should trade negotiations affecting the rice sector. Among rise to 8000 families on 80,000 ha. By using the them are: company's specially developed seeds, which produce fragrant rice, the growers associations are said to be 1. Oryza: market information: doublingtheirincomes.Paddyriceisbeingpurchased http://www.oryza.com/index.shtml at$210/metrictonwithprocessedricefetching$480- 530/metric ton. 2. InternationalRiceResearchInstitute: Helping farmers avoid the use of pesticides and http://www.irri.org/ chemical fertilizers allows the company to register its products as organic. The seeds themselves are 3. Riceonline: depositedattheInternationalRiceResearchInstitute, http://www.riceonline.com/home.shtml and should be subject to IP protection (the EU is 4. USDAEconomicResearchService: now using DNA testing to confirm imported rice http://www.ers.usda.gov/Topics/ varieties). A registered trademark for Neang Mali rice view.asp?T=101218 should boost marketing potential, and efforts are underway to secure SPS registration for the EU 5. EU Commission Agricultural Market market. Prospects2002-2009: http://europa.eu.int/comm/agriculture/ PROTECTING THE DOMESTICRICESECTOR publi/caprep/prospects2002/fullrep.pdf Given the level of smuggling, in both directions, 6. "Towards a Private Sector-Led Growth protection of the domestic rice sector is challenging. Strategy for Cambodia ­ Volume 1: Value However, Cambodia has left plenty of room, in Chain Analysis", June 2003, The World principle, for restricting market access by binding Bank and Global Development Solutions tariffs on virtually all rice products in the WTO at LLC. 40%. Rice seeds are bound at 5%. In the AFTA schedule affecting imports from most neighboring 7. Tariffclassification(fordutyrates):1006 rice producers, seeds are bound at zero, with other 53 54 Annex A3 Agribusiness: Cashew Nuts The biggest development in the world cashew market over the past few years has been the Table A3.1 Production of Cashew Nuts emergence of Vietnam as the dominant producer Producer Quantity2003 Quantity1995 and exporter. The processing capacity in Vietnam is (metric tons) (metric tons) solargethatprocessorsarepreparedtopayhighprices for raw cashew nuts. One result is that a large part of Vietnam 637,200 202,000 theCambodiancashewcropisbeingpurchasedwith India 460,000 321,500 cash and taken informally, or smuggled, across the Brazil 178,400 185,000 border with Vietnam. Prices paid by Vietnamese Nigeria 186,000 95,000 traders are too high for the one processing company Tanzania 123,000 63,500 in Cambodia that is capable of producing for the Cote d'Ivoire 90,000 39,000 worldmarket.Coupledwithexcessivedomesticcosts, Guinea-Bissau 80,000 29,000 and the need for informal payments to move the Mozambique 58,000 33,500 product to and through ports, it is difficult for Source:FAOSTAT2004 Cambodian cashew production to be competitive. Yettheworldmarketforshelledcashewnutsislarge, andtradingconditionsareopen.Additionalpotential With the exception of Nigeria, which produces lies in marketing organic cashew nuts. largely for domestic consumption, most of Africa's cashew nut production is shipped to India for THEWORLDMARKET processing. Although Tanzania is believed to be able FOR ASHEW C NUTS to process about 30% of its crop, processing In 2003, Vietnam was reported to have toppled investmentinotherAfricancountrieshaslargelybeen India from its long-standing position as the world's unsuccessful,withfailureratesoffactoriesconstructed biggest cashew nut exporter. So big has been in the 1980s as high as nine out of ten. India Vietnamese investment in cashew processing and imported 403,000 metric tons of unshelled cashew production that fears are emerging of a world over- nuts in 2002. supply. While over the long-term, producer prices By the same token, Vietnam is taking in heavy have fallen, the trend towards excess processing imports to meet the needs of its own increased capacityhasdrivenpricesofrawcashewnutsbackup, processing capacity. The level of these imports is at least temporarily. difficult to estimate since they include significant TableA3.1illustrateschangesintheproduction informal consignments from Cambodia. The of unprocessed cashew nuts among the major Vietnam Cashew Association suggests the figure was players,comparing2003and1995.WhileVietnamis 220,000 metric tons in 2003, with prices to suppliers only in fifth place with respect to area under cashew increasing by 20% over 2002. So great is the demand crop, its yields are high (2,470 kg/ha). Yields in by Vietnamese processors that supplies of raw India, by contrast, are around 630 kg/ha. (The cashews are now being sought from African recently established Australian cashew industry is producers. aiming at more than 4,000 kg/ha to be competitive.) Exports of shelled cashews are shown in Table Vietnam'sareaundercashewexpandedby35,000ha A3.2, again compared with 1995. The very low levels to 80,000 ha in 2003 alone. ofAfricanexportsofprocessedcashewsareevident. 55 Cambodia and WTO: A Guide for Business Table A3.2 Major Exporters of Shelled Cashew Nuts Exporter 2003 (est.: April-Dec) 2002 1995 (metric tons) (metric tons) (metric tons) Vietnam 80,000 62,000 20,000 India 72,000 122,000 70,000 Brazil 30,000 32,000 Mozambique 631 2,000 Tanzania 399 0 Cote d'Ivoire 211 0 Guinea-Bissau 0 155 Sources: FAOSTAT 2004 and industry news reports The major consumers of processed cashew nuts At the end of 2003, export prices in India are industrial countries, where the product is often (measured as cost, insurance, and freight, or c.i.f., at eaten as a snack with cold beverages. Domestic destination, which is the UK in this example) were markets in the producing countries tend to be small, between Euros 3,155 and 4,557 per metric ton, given the price premiums commanded by exports. depending on grade. That represented a marginal The domestic market in Vietnam, for instance, increaseoverpreviousmonths,butreflectedalonger- accounts for only 5% of total production. The US is termdeclineinworldprices. by far the largest importer of Indian cashew nuts. However, there is some doubt that the market can TRADING CONDITIONS IN THE WORLD CASHEW expand indefinitely due to the sensitivity of domestic MARKET almond producers, who are seeking to regain part of the nut snack market. Table A3.3 lists the main As a tropical product with little direct competition in importers in 2002. temperate zone agriculture, cashew nuts are not subject to protection in the large industrial markets. Table A3.3 Major Importers of Cashew The US, EU, Japan, Canada, and Australia all Nuts in2002 provide duty-free access for shelled cashew nuts. Importer 2002 Thus, Cambodia will not receive any market access (metric tons) advantages over current suppliers in these markets. US 95,400 Cambodiawill,however,benefitfrompreferential Netherlands 20,600 access to the Chinese market through the ASEAN- UK 10,400 China "early-harvest" arrangement. This provides Australia 8,700 duty-free access for Cambodia, against 20% payable Canada 8,100 byVietnameseexporters.However,itisreportedthat Germany 7,400 Vietnamese exports can remain competitive through Japan 6,700 access to informal supplies of raw cashews, and France 5,000 through smuggling across the Vietnamese-Chinese World 209,400 border. Cambodia's own duty on imported cashews (shelled or unshelled) is fixed at 7%. Source:FAOSTAT2004 Wheremarketaccessbarriersexist,theyaremainly relatedtofoodsafetymeasuresandstandards.There All industrial countries import cashew nuts, and is particular concern about aflotoxin in cashew nuts, Vietnam is now gaining footholds in a number of a problem avoided by properly controlled collection non-traditional markets in Eastern Europe, the and drying. As with many other products, cashew Middle East, Japan, and ASEAN. China is also an nuts labeled as grown through organic farming are importer. well received, but must be properly certified. 56 Annex A3 - Agribusiness: Cashew Nuts CAMBODIA IN THE WORLD CASHEW MARKET Cambodian growers who avoid domestic costs and taxes,andsecurehighpricesfortheirproduct. An estimated 8,000 ha are under cashew nut ForCambodia'sonlyprocessor,thearrangement cultivation in Cambodia. Harvests are estimated at is killing their business. The company cannot pay 40,000 metric tons of nuts, an average 500kg/ha Vietnamese prices for the raw product if it wants to yield. Smallholders farm much of the area, along be competitive internationally. At the same time, it with a limited number of large plantations. needs to pay high fuel and electricity costs, interest One example of a large producer that might charges on the original investment, turnover and engage in direct formal exports is a syndicate of 10 other taxes, and all the formal and informal charges owner-farmers in Kampong Cham. With 2,000 ha necessary to get the product to and through planted for cashews, yields are too low to make Sihanoukville port; as much as $1350 per container. investment in processing viable. The view of the owners is that they would have to get yields of SUMMARY between 1-2 metric tons/ha, with a potential production of 30,000 metric tons/year, to be Most of the challenges for Cambodia as a successful competitive in processed nuts. exporter of shelled cashew nuts lie at home, not in Indeed, only one export-oriented processor is export markets. If these challenges are not met, known in Cambodia. The Kampong Cham factory Cambodia will remain a large exporter of unshelled hasacapacityof6,000metrictonsperyear,generating cashewnuts,formally,orinformally,facingthesame 1,000 metric tons of processed nuts. At present, the situation as African cashew producers. factoryisstrugglingtomeetexportcontractsbecause of shortages of raw nuts. This includes sales to the SOURCES AND RACTICAL NFORMATION P I US, from which 70-80 metric tons were ordered for 2004. The company has an organic farming 1. "Cashew Nuts, Essential Oils and Spices: certificationforUSorders. FeasibilityStudyinCambodiaonProcessing Cambodian production of raw cashew nuts is for Export Development", March 2003, feeding about 80 processing factories in Vietnam, A.G.Mathew,InternationalTradeCentre. andprobablyothersinThailand.In2004,Vietnamese traders were offering around $750/tonne (up from 2. Industry information, prices, etc.: $450/tonne in 2002), and prices were expected to http://www.cashewindia.com/html/ rise.Mostofthistradeisinformal;Vietnamesetraders process.htm placeorders,sendtruckstotheplantations,paycash, 3. Tariff classification (for import duty rates): and meet all the informal costs of passingacrossthe 0801 border,backintoVietnam.Thearrangementsuitsmany 57 58 Annex A4 Agribusiness: Livestock Various studies, and experience, suggest that there act, as it does with trade in animal feed. All trade in may be considerable opportunities for Cambodia to cattle is increasingly affected by outbreaks of animal export livestock, notably, cattle, buffalo, pigs, and diseases,notablyBovineSpongiformEncephalopathy poultry.Currently,thecattletradeisprimarilythrough (BSE, commonly called "mad cow disease") and foot smuggling.Properlyfattened,Cambodiancattlecould and mouth disease, in the past decade. Health be sold into growing regional markets, and perhaps standards are becoming increasingly demanding, with also meet growing demand in the Middle East. import bans frequent, and sometimes arbitrary. Limited exports have already been sold to Malaysia. Severaldisputecaseshavebeenpursuedthroughthe In recent years, animal diseases have made global WTO, including that on hormone-fed beef between tradeinlivestockprecarious;meetinghealthstandards the US and EU. isvital.Thiscanbeachievedbydevelopingveterinary Trade in the North American Free Trade servicesandimprovingaccesstoveterinarymedicines. Agreement (NAFTA) area, for instance, is large, but Exploiting the livestock sector would also require self-contained. In 2002, the US imported over 2.5 improved access to competitively produced animal million head of cattle, almost all from Canada and feed.Tradeconditionsforlivestockareotherwiserela- Mexico. Similarly, trade in the EU of live animals is tivelyopen. very high, about 3.3 million head in 2002, but it is largely comprised of trade among member states. THEWORLDMARKET FOR IVESTOCK L External imports into the EU, in 2002, amounted to just over 500,000 head. The world market for live cattle, normally described The more interesting markets concern ASEAN, as live bovine animals, is complicated and regionally the rest of Asia, and the Middle East. Table A4.1 segregated. Clearly, trade in live cattle and beef inter- and A4.2 lists the largest of these markets in 2002. Cattle Imports in 2002 Table A4.1 ASEAN and Rest of Asia TableA4.2 MiddleEast Importer 2002 (head) Importer 2002 (head) Brunei Darussalam 23,300 Bahrain 8,146 Indonesia 171,100 Israel 52,730 Malaysia 97,000 Jordan 40,200 Philippines 117,100 Thailand 183,000 Kuwait 7,400 China 11,500 Lebanon 222,680 Hong Kong 48,000 Saudi Arabia 39,000 Japan 14,500 United Arab Emirates 4,600 Macao 5,300 Egypt 153,000 Nepal 12,000 Source:FAOSTAT2004 Source:FAOSTAT2004 59 Cambodia and WTO: A Guide for Business Live cattle, which, in Cambodia, are used largely live cattle entail an MFN tariff of 15% with an AFTA as draft animals, are imported for a variety of CEPT rate, for 2004, of 10%. purposes, including slaughter, dairy production, and Middle Eastern markets are also largely open, breeding. Among suppliers, Australia dominates the althoughseveralcountrieshaveboundhightariffsin Asian and Middle Eastern markets for live cattle, with the WTO, as shown in Table A4.3. some 948,000 head exported in 2002. While there InadditiontoconcernsoverBSEandfoot-and- has been public criticism of the health conditions of mouth disease, trade in live cattle has also been animals shipped to the Middle East, the Australian affected by disputes over the use of growth industry expects to see the markets there grow. hormones. Over a decade ago, the US, Canada, Among Cambodia's neighboring countries, Australia, and others challenged an EU ban on trade in cattle is already significant. Official figures animals (and beef) produced in the US using such certainly underestimate the true picture, but hormones. A WTO panel found that the ban was FAOSTATreportsMyanmarexporting113,000head not based on any scientific evidence or credible risk in 2002; China 58,000; Laos 35,300; and Cambodia assessment, and called on the EU to remove the 10,600. restrictions. This was not done, and the US imposed retaliatory trade measures against other EU goods. TRADINGCONDITIONS INTERNATIONALLIVESTOCK IN The EU has since claimed that new directives bring MARKETS the ban into conformity with WTO obligations, but the US disagrees. This is not a problem that will While trade in beef is dominated by tariff quotasand affect Cambodian cattle exports. specialaccessconditions,especiallythosenegotiatedbi- laterally in the main Asian markets by the US and CAMBODIA ASA CATTLE EXPORTER Australia, trade in livestock is more open. All major importingcountries,however,oftenhavecomplicated MAFF statistics show a total of nearly 2.9 million and demanding SPS measures in place. head of cattle present in eight provinces in 2002, and ASEAN markets are largely duty-free. That is 625,000 head of buffalo in four provinces. Local the case for Malaysia and Indonesia, while the demand is largely met from used draft animals and Philippines imposes a 3% duty. Thailand's normal surplus young animals. There is a large, exportable 5% rate is reduced to zero for live cattle and swine surplus of cattle. imports under the bilateral preference scheme. The For the most part, Cambodian animals are taken official duty on the Vietnamese border is 5%. across the Vietnamese and Thai borders in small Cambodia enjoys duty-free access to the Chinese numbers, and on an informal basis. In part this is market through the "early harvest" arrangement. because formal imports of Cambodian cattle have Cambodia's own border conditions for the entry of beenaffectedinrecentyearsbyfoot-and-mouthfears Table A4.3 WTO Bound and Applied Tariffs for Middle Eastern Markets Country WTO binding Appliedrates Bahrain 35% 5% Israel 128% Zero for 120,000 head quota 43% for pure-bred breeding cattle Jordan 5% plus 10JD/head 5% plus 10JD/head Kuwait 100% plus 15% stamp duty 5% Lebanon Negotiating accession Zero Saudi Arabia Negotiating accession Zero United Arab Emirates 15% 5% Egypt 10% Uncertain Sources: WTO tariff schedules and customs departments 60 Annex A4 - Agribusiness: Livestock in the two markets. One estimate suggests that stops by the police and military, and the total fees informal exports of cattle and buffalo reach a range collected amounted to $250. of 80-150,000 a year. Apart from lost revenue to the A large Cambodian agribusiness company, has, Cambodian government, cattle producers also lose however,succeededinestablishingthenecessarycon- the value-added through fattening, which takes place ditions for cattle sales to Malaysia. These are reported across the border. to have reached 1,000 head/month and possibly To develop as a significant exporter, the more. Otherwise, the large ASEAN markets remain Cambodian cattle sector needs organization. It also unexploited by Cambodia, while neighboring coun- needs to meet local demand for animal feed, at tries take advantage of the opportunities. competitive prices, to fatten livestock. Potential sources of high-quality natural feed, which is SOURCES AND RACTICAL NFORMATION P I currently imported, all exist in Cambodia. These include fisheries products, the by-products of 1. EU issues: http://europa.eu.int/comm/ sugarcane and cassava, and, potentially, of soybean, food/animal/liveanimals/bovine/ peanuts, and corn. imports_en.htm A further requirement would be the continued improvementofveterinaryservices,andtheenhanced 2. USDA ­ Economic Research Service, availability of veterinary medicines and vaccines. "Agricultural Outlook" December 1997: Without these, endemic diseases like foot-and- www.ers.usda.gov mouth will not be controlled. As with other products for export, competitive- 3. General cattle industry news: ness in overseas livestock markets can be severely hit www.cattletoday.com by the informal domestic payments required to transport cattle and move them through the ports. 4. Tariff classification (for customs duty As an example, one reported consignment of cattle, information): 0102 (live bovine animals) collected from various locations, was subject to 19 61 62 Annex A5 Agribusiness: Mangoes Cambodian farmers grow a variety of high-quality Little more than 2.5% of global production is fruits, many of which are in big demand in developed traded internationally, however, which amounted to country markets. Buyers in developed countries are only 670,000 metric tons in 2002. Table A5.2 shows willing to pay premium prices for fruit certified as the major exporters in 2002. Additionally, Egypt organic. Demand for mangoes, for example, has exportsmangojuice,andThailandtradessome7,400 grown rapidly over the past 10 years, with world trade metric tons of mango pulp. doubling. Several developing countries are trying to TableA5.2 MajorExportersofMangoes(2002) enter foreign markets with highly seasonal fruit of varyingquality.Tradingconditionsforfruitarelargely Exporter 2002 (metric tons) open, although food safety standards are strict. In Brazil 104,000 Cambodia, mango production should be better Mexico 195,000 organized, not only for export, but also to meet Pakistan 48,000 India 41,500 domestic demand, including from tourism. Philippines 36,000 ThecommentaryonthepotentialforCambodia Peru 35,000 as a mango exporter is applicable to a number of Ecuador 30,000 fruit crops. SouthAfrica 17,000 Cote d'Ivoire 10,500 THEWORLDMARKET FOR MANGOES Thailand 8,700 Source:FAOSTAT2004 A very large number of tropical and sub-tropical countries grow mangoes. At least 25 countries World trade in mangoes has doubled in the past produce in excess of 100,000 metric tons of mangoes tenyearsasairfreightrateshavefallen,andpackaging a year; Table A5.1 lists the most prolific. Total world andstoragetechniquesimproved.Whatwasoncean production in 2003 was 25,500,000 metric tons. item traded largely among neighboring countries is Cambodia'scurrentproductionisestimatedat35,000 now an internationally available commodity with a metric tons. large consumer following in developed countries, as well as in poorer markets. All industrial countries TableA5.1 LargeProducersofMangoes(2003) import mangoes, while many Middle Eastern Producer 2003 (metric tons) nations are also large consumers. Table A5.3 lists the India 10,500,000 main importing nations. China 3.400,000 TableA5.3.MajorImportersofMangoes(2002) Thailand 1,750,000 Importer 2002 (metric tons) Mexico 1,503,000 US 263,000 Pakistan 1,036,000 EU 197,000 Brazil 845,000 United Arab Emirates 45,000 Philippines 890,000 China 37,000 Indonesia 730,000 Saudi Arabia 34,500 Nigeria 730,000 Malaysia 31,000 Egypt 326,000 Singapore 13,700 Vietnam 306,000 Japan 9,000 Switzerland 4,000 Source:FAOSTAT2004 Source:FAOSTAT2004 63 Cambodia and WTO: A Guide for Business Among existing mango exporters there appears of Malaysia (15%), the Philippines (5%), and to be much interest in developing current and new Vietnam (5%). Mangoes do not appear on the markets. Consumers are prepared to pay high prices ASEAN-China "early harvest" list, so the applicable for what, in many countries, is regarded still as a duty is 12% for Cambodia. luxury food item. For instance, the Philippines has Health measures are imposed in most significant successfully moved into European markets, with its importing countries. Concern is most marked in the "PhilippinesSuperMango",andisgettinghighprices contextofpests,especiallythefruitfly,whichmaybe in major supermarkets and gourmet stores in imported in mangoes. SPS measures cover residues Belgium, Italy, France, and Luxembourg. The and the presence of pests in consignments; they Philippines has also sought assistance from the US are supplemented by labeling requirements. toprocureirradiationequipmentforpesteradication, (See Annex A1.) inpreparationforadrivetoincreaseaccesstotheUS market. CAMBODIA AS A MANGO/FRUIT PRODUCER AND Brazil is extending its efforts to improve EXPORTER penetrationinNorthAmericanmarkets.Supermarkets in the UK have recently stocked organic mangoes Statistics on fruit production in Cambodia are from Burkina Faso as fair trade products. India has unreliable, especially given the fragmentation of the intensified its marketing in China. Vietnam is sector, and the extent of purely household planting. establishing wholesale fruit markets close to its MAFFestimatesfor2001-2002suggestatotalacreage Chinesefrontier,inordertoboostexportsofproducts of around 165,000 ha, which generates a theoretical like mangoes. In the US, partly to encourage Florida leveloffruitproductionatnearly620,000metrictons. producers, a national mango promotion program Other calculations point to production for local has just been launched, paid for by mango importers. consumption at less than half that figure. Mangoes sold in the main developed country Mangoes are grown on an estimated 27,000 ha markets,however,areofvaryingquality.Thatispartly in six provinces. Officially, there are no exports, and a reflection of the seasonal pattern of production, only a small quantity of imports. However, much of with southern hemisphere mangoes appearing in the the fruit is traded informally with Vietnam; shops at different points to those from the northern Vietnamese traders buy mango crops on the trees, hemisphere, and partly because of the significant before transporting and selling in border markets in differences in varieties. Mangoes with an acceptable Vietnam. MAFF's recent policy paper on fruit and textureaswellasagoodtastearenoteasilyavailable. vegetable marketing notes a paradox in that Further, the marketing potential for organically Vietnamese mangoes are taking a prominent grown mangoes does not always coincide with position in market stalls in Phnom Penh. attractive taste. Thus, despite being a small producer As the same paper points out, mangoes are at present, and with no export record, Cambodia grown in Cambodia with little use of pesticides and may well have marketing advantages if it can bring chemical fertilizers. That fact provides a potentially fruit to the market. valuable selling advantage in overseas markets, if it canbemaintainedthroughtheuseofalternativepest INTERNATIONALTRADINGCONDITIONS FOR MANGOES controlsandnaturalfertilizers.Enteringorganicfruit niche markets in the industrial countries would be an As a tropical fruit with few directly competing exciting,butchallenging,possibilityforthefuture,as temperate zone products, industrial country would the potential for high-value domestic sales to markets have long been open to mango imports, the tourist industry. primarily through commitments made in the To take advantage of such opportunities, the Uruguay Round. The US, EU, Japan, and Canada all sectorhastoundergoalotofchangeanddevelopment. offerzerodutyaccesseitheronanMFNorGSP(US Producers need to be organized to produce for and Japan) basis. external markets, as well as for domestic consumers. ASEAN markets are also largely open. Within Many farmers will probably need to diversify crops ASEAN, the CEPT rate is zero, with the exception andvarieties,inordertoadapttoseasonalproduction 64 Annex A5- Agribusiness: Mangoes patterns and meet market requirements. There is a an issue of perceived quality differences between need to make the investment climate in the fruit imported and Cambodian-grown products. To the sector attractive to foreign firms with access to, and extent that the consumer perception is unfair, there experience in, industrial markets. Storage, processing, is nothing in the WTO to prevent government or and transport of fruit needs a lot of attention, industry campaigns to promote local products. A although the facilities at Phnom Penh airport are campaign called "EatHealthy-EatLocal" as has been reported to be excellent, and would lend themselves proposed by MAFF. to the marketing of high-value fresh fruit interna- For Cambodian fruit to succeed in foreign tionally.Localfruitandvegetablestoragefacilitiesneed markets, Cambodia will need to be recognized by tobedeveloped,whichwouldbehelpedbyreducing internationalconsumersasasupplierofhigh-quality, import duties on refrigeration units and controlling naturalproducts. electricitycosts. Highly perishable fruit products must be SOURCES AND RACTICAL NFORMATION P I brought to market with minimal delay; least of all, delays imposed through road checks and enforced 1. "Vegetable and Fruit Production and illegal fees. Marketing Draft Policy: Policy Background Meeting international standards for trading fruit andProposedImplementationStrategies", is the immediate challenge. SPS measures will only April 2003, Ministry of Agriculture, tighten in the future, which means the capacity for Forests and Fisheries and the Agricultural quality control, including of farming inputs, and Quality Improvement Project. efficient and recognized phytosanitary inspections need to be further developed. By the same token, 2. USDA background: adequate SPS inspection at the borders would help http://www.ams.usda.gov/fv/ ensure that imported products do not open rpmango.htm Cambodia to fruit pests and disease that would damageoverseasmarketprospects. 3. International industry news and country The competition from imported fruit is clearly a supplier profiles for fruit and vegetables: concern, though one that cannot be met by arbitrary www.tapin.uk restrictions (WTO and AFTA rules would not allow it, and smuggling would circumvent it). Part of the 4. Chilean website (part subscription) with a problem is clearly the costs, official and unofficial, wide range of fruit industry trade news and inherent in getting domestic fruit to market. It is also data:www.fruitonline.com 65 66 Annex A6 Agribusiness: Vegetable Oils Cambodia imports many types of vegetable oils, but to compete with petrochemicals in paints, inks, is an experienced exporter of palm oil. Various plastics, lubricants, soaps, and cosmetics. The same oilseed crops are leaving the country, however, product can be refined as biodiesel fuel; Malaysia has through informal channels, to feed heavy processing pioneeredelectricitygenerationusingpalmoil.These capacity in neighboring countries. The world market and other uses are likely to boost the non-food for vegetable oils is complex because of competing applications of vegetable oils and fats from 15% to temperatezone/tropicalproducts.Accessconditions 20% of total production by 2010, according to one are likely to improve, and production subsidies industry expert. Clearly, long-term increases in oil diminish, as a result of the WTO's Doha Round pricescanonlyreinforcethetendency. negotiations.However,themarketcontinuestogrow Nevertheless, export prospects for Cambodia, as new uses emerge, related to demand for both with respect to processed vegetable oils, are not healthy food products and industrial derivatives to necessarilyextensive.Thereisvastglobalproduction compete with petrochemicals. China is a large and capacity for both oilseeds and processed oils. Total growing market for vegetable oils; several ASEAN world production of vegetable oils increased from members offer relatively open market access. 85 million metric tons in 1998 to 96 million metric Opportunities exist for Cambodia to export more tons in 2002, according to the FAO. Two products palm oil, and to replace some of its vegetable oil accounted for the bulk of the jump: palm oil moved imports, if local production costs can be contained. from 18 million metric tons to 24 million metric tons, and soy bean oil from 23 million metric tons to THEWORLDMARKET FOR EGETABLE V OILS 26 million metric tons. World trade in vegetable oils totals, on average, The world market for vegetable oils is complex, and around 33 million metric tons a year, of which 15 subject to significant access restrictions and million metric tons is accounted for by palm oil and subsidies in industrial nations, and some developing 8 million metric tons by soy bean oil. Malaysia and countries. In large part, this is because a number of Indonesia virtually share the world market for palm tropical vegetable oils are in direct competition with oil between themselves. Malaysia has 60-70% of the temperate zone products, notably soy bean, rape- world export market, while Indonesia takes 12-24%. seed (canola), and sunflower oils. Competition in Thesoybeanoilmarket,incontrast,islargelyinLatin the soy bean and soy bean oil markets is particularly American hands; Argentina is the leading exporter distorted. This has been exacerbated in recent years with a 27 - 37% share, and Brazil with 13 ­ 18%. by the refusal of the EU and some other WTO However, subsidies allow the US to take 9 ­ 18% of members to accept imports of soy bean products themarket,andseveralEUcountriesfollowclosely. based on genetically modified seeds. Much of the trade in vegetable oils takes place Vegetable oils, notably rapeseed oil, are gaining within the Asian region. In 2001, Asia imported 16 popularity for cooking, salads, and other kinds of million metric tons, out of the 36 million metric human consumption as concerns grow over the tons traded globally. China, in particular, has become health effects of animal fats. Vegetable oils and fats, a very large importer. In 2002, China imported 2.3 and by-products, are also processed as livestock feed, million metric tons of palm oil, second, worldwide, particularly as worries have emerged over the safety only to India, which purchased 3 million metric tons. of animal product components in feed. China's imports of soy bean oil in 2002 were, at Industry is providing a growing market for 908,000 metric tons, also the second largest after vegetableoils.Palmoil,forinstance,canbeprocessed India (1,200,000 metric tons). 67 Cambodia and WTO: A Guide for Business Ofcourse,tradeintherawcommoditiesismuch tation period that lasts until 2006. In 2006, the larger,inquantitativeterms,thanprocessedorsemi- quotas will be eliminated and replaced by a singe 9% processed oils. Again, however, it is China that has duty for all imports of soy bean and palm oils. become the dominant importer, purchasing 13.8 Indonesia maintains CEPT duty-free entry for million metric tons of soy beans in 2002. Collec- both soy bean and palm oil, Malaysia duty-free or 5%, tively, the countries of the EU imported around 20 Thailand 5%, and the Philippines duty-free or 3%. million metric tons, and the EU is also a large importer of soy bean meal. The other big importers CAMBODIA AND TRADE INVEGETABLEOILS of soy beans are Japan, Korea, Mexico, Thailand, and Malaysia. As for palm kernels for palm oil Cambodia has little modern processing capacity for production,theonlysignificantimportersareMalaysia manufacturing edible vegetable oils, and is, thus, a (27,400 metric tons in 2002) and the UK (64,000 heavy importer. Table A6.1 shows the import levels metric tons). However, as discussed below, regional fordifferentvegetableoilproductsin2003.Theseare trade isboosted significantly for these and other raw official imports; supplies also enter the country products through smuggling. informally. Furthermore, considerable quantities of soybeansandsesameseedsaresentoutofCambodia TRADINGCONDITIONS FOR EGETABLE V OILS through informal channels into Vietnam for processing. This may be the case for other oil seeds. Market access and subsidy regimes differ widely among WTO members and other importers. Table A6.1 Imports of Selected Vegetable Generally, tariffs on oilseeds are lower than those for Oils into Cambodia (2003) vegetable oils. According to the US Department of Product Quantity Customs value Agriculture, applied tariffs on soy bean oil, for (metric tons) (million Riels) instance, average around 20% for the world's main importers, while rates on soy beans are generally Processedsoy below 10%. Some countries also use differential bean oil 1,500 2,830 export taxes; Argentina is one example. Processed olive oil 27 50 Direct production subsidies and other forms Palm oil 16,650 31,162 of government support in the oilseed business are Sunfloweroil 187 622 common. Special conditions regarding financial Linseed oil 9 19 support and the acreage farmed have applied to the Corn oil 75 221 oilseedsectorintheEUeversincetheUruguayRound, Sesame oil 4 5 although these are now being eliminated. The US Nut oils 32 55 still maintains programs to support farmers in the Mixedoils/fats 579 1,233 sector. ThecurrentDohaRoundofWTOnegotiations Total 19,063 36,197 should lead eventually to more competitive Source: Customs Department conditions in the oilseeds sector, in the areas of ex- port support, domestic support, and market access. Local production of vegetable oils for human China, as a result of its WTO accession consumption in the Cambodian market is limited. agreement, has substantial tariff quotas covering Consumers understandably look for the best quality imports of soy bean oil, palm oil, and other products at the lowest prices. Generally, these are vegetable oils. For palm oil and soy bean oil, these being supplied from Vietnam, Malaysia, Indonesia, increase from an initial quota of around 2.1 million Singapore, and Thailand. For instance, out of six metric tons to over 3 million metric tons in 2005. peanut oil producers in the Phnom Penh area, only Duties for imports within the quotas are at 9%, one survives, manufacturing low-grade oil for against a bound rate of 63.3% outside the quotas. industrial use. To compete with imported first grade The proportions of the quotas allocated to Chinese cookingoil,oneCambodianmanufacturerestimates state trading enterprises falls during the implemen- would have to surmount a 30% price differential 68 Annex A6 - Agribusiness: Vegetable Oils generated by local cost handicaps due to high capital 2.USDAsectoranalysis: costs,electricity,fuel,etc. http://usda.mannlib.cornell.edu/reports/ Imports of vegetable oils into Cambodia face a erssor/field/ocs-bb/ 7% tariff and 10% VAT rate. Cambodia has bound its tariff on most vegetable oils at 30% in the WTO. 3. USDA Foreign Agricultural Service brief: In 2003, Cambodia exported to Malaysia 1,600 http://www.fas.usda.gov/oilseeds/circu metric tons of processed palm oil and 400 metric lar/2004/04-09/toc.htm tons of crude oil, with a combined customs value of Riels 1,500 million. Two other small shipments were 4. BBS Oils-Vegetables Ltd ­ major vegetable recorded to Vietnam and China. oils trader in the UK: http://www.oils-vegetable.com/ SOURCES AND RACTICAL NFORMATION P I 5. EU Commission Agriculture Directorate 1. National Non-Food Crops Centre (UK) ­ agricultural markets forecasts 2003-2010 : information on non-food uses of palm oil: http://europa.eu.int/comm/agriculture/ http://www.nnfcc.co.uk/about/scope.cfm publi/caprep/prospects2003/index_en.htm Tariffclassification(forimportdutyrates):1511 69 70 Annex A7 Agribusiness: Palm Wine Palm wine is one of many products that can be high rate based on alcohol content. Thailand has a generatedfromthesugarpalmtree.Acompany,based bound rate of 60% with an applied CEPT rate of nearPhnomPenh,ismanufacturingcrystallizedfruit, 5%, while Vietnam has a bound rate of 100% with a vinegars,hats,andbaskets,aswellasarangeofwines 2004 CEPT rate of 15%. The Philippines and and cocktails from various products of the sugar Singapore are both open markets with duty-free palm. Its alcoholic beverages include two grades of access. plain palm wine (8% and 10% volume alcohol), a China's market for products of this kind is pineapple palm cocktail and a ginger palm cocktail. heavilyprotectedagainstcompetitionwithtraditional Theseproductscouldseeknichesinthesweetaperitif local drinks. Its WTO bound tariff of 60.5% will market. Asian markets are often protected in favor reduce only to 40% by 2010. of local alcoholic drinks, or for religious reasons. Access to industrial markets is either duty-free There is little protection, however, in developed (to Australia, the EU, and the US), or subject to countries, but strict food safety standards must be relatively low duties based on alcohol content. As a met. Informal administrative charges and fermented drink, palm wine and similar products are infrastructure shortcomings in Cambodia damage subject to strict SPS controls in all developed competitiveness. WTO conditions will make little markets, thus, the WTO agreement on SPS difference except, perhaps, in the context of food Measures may be of importance to this industry (see safety standards under the Sanitary and Phytosanitary Annex A1). (SPS) Measures Agreement. The company was helped to start up by various CAMBODIA'SEXPERIENCE IN XPORTING ALM E P WINE Non-Governmental Organizations (NGOs), the Centre de Coopération Internationale en Recherche The one Cambodian company producing wine/ Agronomique pour le Développement (CIRAD) in cocktail drinks markets them in attractively labeled Montpelier (France). The owner are graduates of the 500ml.bottles,which,forthemoment,areimported Cambodian Institute of Technology, and from Thailand. These bottles attract a 7% duty and Cambodian expatriates. Their products have found 10% VAT, which are not being refunded, despite a limited market in France. Markets in Malaysia, the fact that the end products are exported. The Singapore, Indonesia, Taiwan, and Thailand, as well company has also encountered problems in as the US, are being explored. obtainingcertificatesoforiginfromMoC,whichhas Nodataisavailableontheextentofinternational resulted in fees of up to $300 per shipment being trade in palm wine and similar products. Most such charged, instead of $25. Further, despite certification beverages are produced for local markets, and few fromtherespectedInstitutPasteurinParis,repeated penetrate international markets, except to meet the Camcontrol inspections and requests for additional demands of expatriate communities. analyses are adding to costs. In a competitive market for wines and cocktail drinks, these burdens reduce TRADINGCONDITIONS FOR ALM P WINE the opportunities for large-scale commercial exploitation in industrial country markets.Switching Market access conditions in ASEAN vary widely for the bottle source to a Cambodian producer ought to drinks based on the fermentation of juices, other improve competitiveness. The bureaucratic cost than grapes, and tree saps (the basis for palm wine). handicaps should be reduced as WTO regulatory Indonesia has a CEPT rate of 170%, and Malaysia a disciplinesbegintotakeeffect. 71 Cambodia and WTO: A Guide for Business If a product is competitive, the key to success in verylivelyandinnovativemarketsinwhichconsumers industrial markets and the more advanced arepreparedfornovelty,ifproductsarewellmarketed. developingcountriesintheregionislikelytobegood Comparedwithsuchcompetingproducts,palmwine marketing and the promotion of high-quality has a rather low alcohol content. This may prove an Cambodianbrands. advantage in societies where alcohol consumption, Palm-based cocktails could reasonably compete in the context, particularly, of road safety, is being in the market segments occupied by the sweeter strongly discouraged and penalized. aperitifs. Palm wine is close in taste to some sweeter white grape-based desert wines. Certainly these are PRACTICALINFORMATION 1. Tariff classification (for import duty rates): 2206 72 Annex A8 Agribusiness: Rubber After garments and footwear, rubber has historically According to the International Rubber Study been Cambodia's most important export product. Group, world production and consumption of The quality of Cambodian rubber is generally high, natural rubber has continued to grow substantially yet it is seldom sold directly to overseas customers since 2000, even as the synthetic rubber sector has and is discounted by as much as 15-20% on world surged.Thus,worldproductionin2002reached7.35 prices.TheCambodianrubberindustryisstilllargely million metric tons, of which 5.66 million metric state-owned. Worldwide, the industry is still heavily tonswasproducedinASEANcountries.Inthesame affected by government intervention, and by year, synthetic rubber production and consumption attempts in Asia to limit competition through worldwide were both around 10.9 million metric cartels. Cambodia has confirmed, in the WTO tons,withproductioninAsia/Oceaniaalmostequaling accession negotiations, that it will privatize most that in the EU and North America combined. The public rubber industry assets by 2006. WTO rules Group estimates that natural rubber production and market access conditions will be of little value, reached 7.89 million metric tons in 2003, and will however, until Cambodian rubber producers are grow another 6.4% (down from 11.4% the previous recognized for producing to international quality. year) in 2004 to 8.26 million metric tons. Synthetic rubber production is growing currently at around 5- THEWORLDMARKET FOR UBBER R 6%ayear. Rapid economic growth in China and the In the 30 years from 1970 until 2000, world natural advanced ASEAN nations is creating huge new rubber production more than doubled, from almost demand for natural and synthetic rubber, which 3 million metric tons to 6.9 million metric tons. showsnosignsofdiminishing.Indeed,Chinamoved Asian countries accounted for nearly all the growth; from being a modest rubber exporter in the in fact, production in just two countries, Thailand mid-1990s to a heavy importer. Table A8.2, on the andIndonesia,rosetoapproachcompletedominance next page, lists the principal import markets in in the sector. Table A8.1 illustrates the change. 2002. Table A8.1 Principle Natural Rubber Producers 1970-2000 Producer 1970(1000metrictons) 2000 (1000 metric tons) Thailand 287.2 2235.7 Indonesia 802.1 1488.3 Malaysia 1269.4 768.9 India 89.9 620.1 China 46.2 500 Vietnam 33 290.8 Cambodia 12.8 40 Source: UNCTAD 73 Cambodia and WTO: A Guide for Business Table A8.2 Principle Importers of Natural Asia. Among the biggest players, Michelin now has Rubber two tire production plants in China, one in Japan, Importer 2002 (metric tons) and four in Thailand; Bridgestone Corporation has EU(25) 1,150,000 three plants in Thailand, two in China, two in US 1,007,500 Indonesia, and several others in the Asia Pacific China 957,000 region; and, Goodyear has one production plant in Japan 770,500 Thailand,thePhilippines,Malaysia,Indonesia(where Korea 299,000 it also owns two rubber plantations), Japan, and Malaysia 195,000 China. Among the smaller companies, Sumitomo Canada 156,000 andHankookarebothinvestingheavilyinproduction Brazil 131,500 plants in China. In 2003, Cambodia imported rubber tires and Source:FAOSTAT2004 inner tubes with a combined customs value of $4 million. Global suppliers of natural rubber products are few, and all are Asian countries, as shown in Table TRADINGCONDITIONS INTHE NTERNATIONAL I A8.3. RUBBERMARKETS Table A8.3 Major Suppliers of Natural Theinternationalnaturalrubberindustryisstillheavily Rubber affected by government intervention and the trading Exporter 2000 (metric tons) activities of state-owned enterprises. Following the Thailand 2,054,000 collapse in 1999 of the International Natural Rubber Indonesia 1,487,000 Agreement, operated under UN auspices, Thailand, Malaysia 809,000 Indonesia,andMalaysiaestablishedtheInternational Vietnam 448,500 Tripartite Rubber Organization (ITRO). The Philippines 44,500 organization, later joined by Vietnam, was intended Cambodia 44,300 to emulate the Organization of Petroleum Exporting India 37,000 Countries (OPEC) cartel by restraining production SriLanka 34,500 and depressing exports from the world's largest producers,therebyincitingapricerecovery.Thescheme Source:FAOSTAT2004 quickly ran into problems over its organization and financing. Nevertheless, Thailand, for example, has International prices for natural rubber are maintained an active price intervention system, and erratic. If the long-term trend, over a decade, has the government is reportedly seeking to divert new been firmly downward, prices have recovered in crop plantings away from rubber towards the palm recent years and move dramatically either way over oil sector. short periods. In part, these fluctuations are related While government intervention in the main to weather, local demand by indigenous processors producers is still marked, most natural rubber in the main producing countries, exchange rate consuming markets are formally open. Industrial movements in Asia, and economic growth in the countries offer duty-free access for basic natural consuming countries, which affects demand for rubber products. Malaysia, the largest ASEAN rubber tires for road vehicles. Oil prices are a major importer by far, has duty-free access while the determinant of the price of synthetic rubber, and, Philippines, Thailand, and Vietnam have zero or 3% therefore, impact demand for natural rubber. duty rates. Some bound tariff levels can be much Some 60-70% of natural rubber production higher than the currently applied rates, for instance, feeds the vehicle tire industry. Demand for cars, in 50%(bound)and20%(applied)forThailand.China particular, has a major impact on the natural rubber has a 40% WTO bound rate for the products sector. In recent years, the major international tire exported by Cambodia. However, it now applies a companies have focused their new investment on duty of only 5% and a 10% VAT rate. 74 Annex A8 - Agribusiness: Rubber CAMBODIA'S RUBBERPRODUCTION AND RADE T products on the international markets have averaged around $1,100 per metric ton, with Cambodian Currently there are seven state owned rubber exports generating just $900 per metric ton. plantation companies in Cambodia, with total However, efforts are underway meet and certify tapping area of 27, 000 ha, and an unexploited international standards. plantation area of 11,500 ha. The industry employs WTO entry will not have a major impact on about 20,000 people. In 2003, a total of 33,000 Cambodian rubber producers until they gain metrictonsofbasicprocessedrubberproductswere recognition for the international quality of their generated, with a value of $31 million. Actual products. exports in 2003 were over 37,000 metric tons. The During its WTO accession negotiations, basic processed rubber produced in Cambodia is Cambodia assured the working party that the seven regarded as of first quality, even compared with that state-owned rubber companies would leave public of Malaysia. ownership by 2006; being closed, sold to the private The rubber sector is unusual in that Cambodia sector, or turned into joint ventures with majority possesses significant modern processing capacity to private ownership. produce some basic rubber materials, though not finished products. There is no domestic industrial SOURCES AND RACTICAL NFORMATION P I demandforthemanufactureoftiresorotherrubber products,soallproductionisforexport.Traditionally, the markets have been Vietnam, Malaysia, Singapore, 1. International Rubber Study Group: Korea, and China. http://www.rubberstudy.com/ However, in 2003 Cambodia exported rubber aboutus.aspx overwhelmingly to Vietnam. Vietnamese traders normally re-export the Cambodian rubber products 2. Daily rubber prices: to the end-users, especially China. The Vietnamese http://www.rubberstation.com/ marketisconvenient,astransportationandtransaction ZM(English)1-2.htm costs are low, and the Vietnamese traders pay cash. Aside from the state owned companies, there 3. Information Centre for Natural Rubber: are currently two private companies growing and http://www.rubber-stichting.ind.tno.nl/ processing rubber, although on only 2000 ha each. index.html In 2003, a private Japanese company conducted a research study on a potential investment in rubber 4. Recent Developments in Natural Rubber plantations, but has not proceeded further to date. Prices: http://www.fao.org/documents/ NGO projects to support family-owned rubber show_cdr.asp?url_file=/DOCREP/006/ plantations have been based on the expectation of Y4344E/y4344e0d.htm sector growth potential. SinceCambodiacurrentlyexportsonlythebasic 5. UNCTAD brief on rubber sector: processed rubber products to neighboring markets, http://www.unctad.org/en/docs/ the state-owned companies have not considered it ditccom20041ch17_en.pdf necessary to meet international quality standards. Thus, the high quality of Cambodia's rubber output 6. Specialist importer of basic rubber is not recognized by importing countries, and cannot products: besolddirectlywithCambodia-originlabels. Without http://www.weber-schaer.com/en.html suchrecognition,Cambodia'sproductsarediscounted by as much as 20%; an annual income loss of as 7. Tariff classification (for import duty rates): much as $20 million. Recent prices for the relevant 4001 75 76 Annex B Fish The opportunities for Cambodia to exploit its fish Table B.1 Imports of Fish Catch, 2001 resources in export markets are clear, and potentially Importer Quantity (metric tons) very large. Demand for high quality fish and fish Malaysia 220,105 products is expanding globally, while supply is China 180,500 limited.Marketsarelargelyopen;however,standards Korea 105,319 for consumer food safety, labeling, sustainable Singapore 57,396 production, and the widespread use of subsidies, Thailand 28,901 set a series of barriers that need to be overcome in Source:FAOSTAT2004 orderforCambodiatohaveastrongchanceofentering globalmarkets.Cambodiaislosingthevalueofmuch Table B.2 shows imports of all processed fish of its marine catch due to the direct offloading of products, including chilled and frozen fish and fish and shrimp onto foreign vessels. However, costs shellfish. Hong Kong is not included, but the value of processing, transport and shipment in Cambodia of its imports of fish products are estimated by the areoftentoohighforlegitimatetradetobeprofitable. International Trade Centre to be $1.77 billion for WTO Doha Round negotiations to control 2001 (China's import value was $1.320 billion by the fishing subsidies, if successful, should open new same measure, and Korea $1.584 billion). opportunities. Table B.2 Imports of Fish and Fisheries Products,2001 THEWORLDMARKET FOR ISH F &FISH PRODUCTS Importer Quantity (metric tons) China 3,000,000 According to the FAO, the export value of fish and Korea 1,057,000 fish products traded worldwide multiplied almost Thailand 976,000 four times in the period 1980-2001, from some $15 Malaysia 351,600 billion to $57.7 billion. The total global fish catch in Philippines 250,000 2001 was 130 million metric tons, of which 70 Singapore 173,000 millionmetrictonswasthroughmarinefishing.More Indonesia 152,000 than one-third of total production goes into Vietnam 19,000 international trade, and growth in exports is tending Source:FAOSTAT2004 towards developing country suppliers. The share of poorer countries in global fish and fish products Imports of processed fish products into exports is over 50%, by value, with net revenues developed countries, in 2001, were around 18.5 (exports minus imports) recently reaching $17.7 million metric tons in total. Demand in European billion. and North American markets has traditionally been For the moment, most of Cambodia's fish trade met by national fishing fleets; however, consumer interest in exotic fish products, especially shellfish, prospectsareregional.However,EastandSoutheast has grown rapidly. At the same time, pressure from Asian countries are among the world's largest reduced fish stocks, as a result of over-fishing, in importers.TableB.1showsmetrictonsoffishcatches local waters has pushed consumer prices up and importeddirectlyintosomemajorlocalmarkets(the stimulated imports from further away, notably figures omit informal landings). PacificandSouthAtlanticsalmonandtunaproducts. 77 Cambodia and WTO: A Guide for Business TRADINGCONDITIONS FOR ISH AND ISH RODUCTS F F P Fund, in 2001, put the global level of subsidies to the fishing industry at between $10 and $15 billion a In principle, most important markets for fish are year. This would represent some 15-20% of the relatively open for Cambodian products. While it is revenues received by fishing fleets at the dockside, true that there are some specific high tariffs in and, according to US trade negotiators, provide a developed markets, and some incidence of tariff majorinducementtoexpandfishingcapacities. There escalation, least-developed nations like Cambodia is disagreement over the proportion of this financial generallybenefitfromloworzerotariffpreferences. aid going into beneficial programs, rather than Thus,theEU,US,andCanadianmarketsforfish,fish expanding fishing capacity. A study of APEC Pacific preparations, and fish pastes/sauces are essentially Rim members in 2000 found that the total value of duty-free. Japanese markets are subject to duties support programs in the fish sector amounted to between0and5%. around $12.6 billion. Some two-thirds of the total ASEAN markets are also generally open, with were reckoned to be spent on programs to increase currentCEPTratesatzeroforSingaporeandMalaysia, fishing activity, and, therefore, potentially to with the exception of some fish preparations. The underminestockabundance. Philippines offers duty free access, except for fish Fisheries subsidies are being tackled within the fillets, some dried or salted products, and fishmeal, WTO's Doha Round negotiations. As part of a which attract a 5% duty. Thailand's CEPT rate is 5% review of the WTO subsidies agreement, they have on most products, as is the case for Indonesia. been singled out for attention because of the view Under the "early harvest" arrangement with China, that subsidies stimulate over-fishing, and, therefore, Cambodia benefits from duty free access for all key the unsustainable reduction in fish stocks. While fish products, including live fish, frozen fish/fish Cambodia is not likely to be affected directly, since it fillets, frozen shrimp, fresh or frozen shellfish, and is unlikely to make significant use of public funds to fish preparations. Korea's special market preferences expand fishing fleets, any decision to enhance forleast-developedcountriesprovideCambodiawith disciplines on fisheries subsidies could, in the long duty-freeaccessforshellfish. term, impact the Asia-Pacific region. However, The major hurdle for developing country precisely what the effect would be on the availability exporters of fish products towards industrial and price of landed fish is difficult to forecast. markets is meeting technical, health, and ecological A number of WTO countries have proposed regulations. SPS regulations are stringent and new approaches to discipline fisheries subsidies, complex in the EU, US, and many other markets. includingAustralia,NewZealand,Chile,theUS,and Fishing techniques have also been the subject of the Philippines. One such approach would be to set lobbying activity by environmental and animal rights out clearly the kinds of subsidies to be regarded as groups in the developed world. Their activities have harmful, and therefore prohibited, and those that led to attempts to restrict imports of some fish and are beneficial. Beneficial support might include fish shellfish products on the basis of the manner in management and environmental protection. Japan whichtheseproductsarecaught.Legalchallengeshave and Korea are among the countries taking a more been pursued through GATT and the WTO, skeptical view of the extent of harmful fisheries notably, concerning tuna (where certain fish nets can subsidies, and of the need for new disciplines. trap and drown dolphin) and shrimp fishing (where sea turtles can be harmed). Thailand, Malaysia, and CAMBODIA IN THE NTERNATIONAL ISH I F MARKETS the Philippines were among the complainants against US regulations that blocked their shrimp exports. Cambodia's potential as an exporter of fish and fish They succeeded in securing favorable WTO rulings products is considerable. The country's natural fish and a subsequent resolution of the problem. resources, marine and inland, are large, even if over- Subsidies are a major distortion of world trade fishing is already a problem. Estimates vary widely, in marine fish. One estimate by the World Wildlife but as many as 4 million people may depend on 78 Annex B - Fish fishing as a primary or secondary source of income. export items were frozen fish and shrimp, and live Government9 data suggests a total fish catch of sand goby (popular and expensive items in 195,500 metric tons in 2001 (135,000 metric tons restaurants in Hong Kong and Singapore). The most inland, 42,000 metric tons marine, and 17,500 from important markets were Hong Kong, China, aquaculture). An EU-funded study estimated the Singapore, the US, and Australia. freshwater catch at up to 300,000 metric tons alone, The experience of one Hong Kong based taking account of small-scale rice-field fishing. companythatestablishedoperationsinSihanoukville, AlargepartoftheCambodianinlandfishcatch, in 1990, for freezing and shipping shrimp and both family-scale and commercial, goes into the marine fish, illustrates the difficulties faced by production of fish paste, called prahok, for local processors in expanding exports. Currently consumption. One study estimated the value of fish shipments are restricted to one or two per month of paste production, in 2000, through family-scale about40metrictonseach. Potentialdemandismuch enterprises to be $8.75-12.5 million of a total output higher, but there is a major supply constraint from worth $10.9-15.5 million. The total covers preserved, local fishermen who are selling their catches directly processed, and exported inland products. At the on to Thai boats. At the same time, the Japanese commercial level, fish paste in its final and semi- market has been depressed recently by low demand, processed states accounted for $3.5-3.95 million of while costs in Cambodia are too high to take $12.8-13.9 million in inland fish products and live advantage of opportunities in Thailand and fishexports.Otherimportantcommerciallyprocessed Vietnam. In 2000, the total value of exported frozen inland fish products were salt-dried fish ($5 million), shrimp was $3 million, against approximately smoked fish ($1.4 million), and fermented fish $700,000 in official exports in 2003. ($500,000-$1,160,000).Productionoflivesandgoby The EU market, for the moment, is barred reached150metrictons,worth$780,000to$930,000. because of a failure to meet SPS standards. Programs The commercial processing of marine fish is are being devised to correct the situation (Vietnam valued at $9.52-9.89 million and consists mainly of resolved a similar problem in two years). However, chilled and frozen shrimp, chilled crabmeat, and live there will need to be certified domestic testing surf clams. facilities (or access to such facilities in an accredited Cambodia imports small quantities of frozen country), improvedveterinaryinspectioncapacity,and fishandfishpreparations.Mostimportedprocessed certified processing factories and cold storage fish products face 15% or 35% duties with a VAT facilities. Issues like the use of classified toxic rate of 10%. Fish preparations are rated at 7% plus insecticides in fish preservation and processing will 10% VAT. also need to be dealt with. Exports in 2003 had a customs value of a little Competitiveness in the fish export sector is under$3million,accordingtoCustomsDepartment especially affected by the country's infrastructure returns. This appears to be a significant reduction handicaps, and the informal costs of moving the overlevelsreachedinthe1990s.Itisalsoonlyhalfof highlyperishableproductstoport.Onegraphicpiece the figure computed by the International Trade of analysis by CDRI, in 2003, noted 27 fee payments Centre, for 2002, from the import statistics of for a 3.1 metric ton fish shipment from Chhnok Tru Cambodia's main markets. In any event, exports are to Long Koeur market in Thailand. In total, the seriously under-estimated because of the prevalence shipment cost $235.9 in fees paid to the fisheries of smuggling and off-loading between Cambodian authorities, the economic police, the military police, andThaimarinefishingvessels.Formally,themajor customs,andotherinstitutions.Thejourneybytruck 9Department of Planning, Statistics, and International Cooperation, Ministry of Agriculture, Forestry and Fishery 79 Cambodia and WTO: A Guide for Business took 21 hours. The fees paid reduced the profit SOURCESAND RACTICAL NFORMATION P I margin on the shipment to just $111 on an initial purchase price at Chhnock Tru of $3731.8. The 1. "The Inland and Marine Fisheries Trade of authors of the study noted that the fees paid Cambodia, 2002, H.E. Touch Seang Tana & (includingthecustomsduty)wereactuallynegotiated; Bruce H. Todd, Oxfam had the official fee structure been imposed, the 2. Food and Agriculture Organization ­ Fisher- shipment would have seen a net loss of $366. ies Department: Although the role of KAMFIMEX, which http://www.fao.org/fi/default_all.asp issuesfishcollectionlicenses,aswellasadministering 3. ASEANFisheriesFederation: a 10% export tax and collecting other fees, is being http://www.aff.or.id/ reduced, the costs associated with exporting fish, 4. APEC Working Group on Fisheries: whether formal or informal, are prohibitively high. http://www.apecsec.org.sg/apec/ The export tax was questioned during the WTO ac- pec_groups/working_groups/fisheries.html cession negotiations. However, export taxes are not 5. Fish subsidies negotiations in the WTO: inthemselvescontrarytoWTOrules,solongasthey http://www.fao.org/docrep/005/y4852e/ are imposed without discrimination, and no y4852e08.htm commitment was made by Cambodia to reduce or 6. Tariff classifications (for import duty rates): remove those that applied to fish. 0301, 0302, 0303, 0304, 0305, 1604 80 Annex C1 Handicrafts: Silk Products The world market for silk and silk products is low in in 2000, followed at some distance by India (18,000 volume,andextremelyhighinvalue.Theproduction metric tons) and a number of minor producers, of silk yarn occupies less than 0.2% of the global includingJapan,Brazil,andKorea. textilesfibermarket.Rawsilkpricesaretwentytimes The major importers of silk and selected silk those of raw cotton and silk products, from yarn products are shown in Table C1.1. While the United and fabric to high fashion, are premium products. States has virtually no processing capacity and Cambodianrawsilkisofhighquality,butproduction imports fabric, notably for domestic furnishings, isminimal.Weaversrelyoninformalimports,which both France and Italy remain large-scale consumers complicate the certification of origin of Cambodian of raw silk. These, and some other European Union made silk products. If standards and origin can be countries, produce very high value silk fabrics for demonstrated, there are many market opportunities fashion garments and accessories, although their in wealthy Asian countries, which offer duty-free imports of finished silk fabrics and silk products are entry. Capacity is currently too limited to allow for growing fast. Germany is the largest EU market for economies of scale, and a critical mass of high-quality silk textiles, clothing, and interior decoration fabrics. exportablegoods.Inthesecircumstances,WTOrules Japan has seen its domestic silk production decline canhavelittleimpact. by nine-tenths over the past half century, and now relies significantly on imported yarns and fabrics. THEWORLDMARKET FOR ILK RODUCTS S P About 50% of silk consumption is accounted for by the production of kimonos. Korea also has moved In terms of production of raw silk, China is from dependence on a domestic silk sector to predominant with an output of 82,000 metric tons become a major importer. Table C1.1 Major Importers of Silk and Selected Silk Products (US$ millions) Importer10 Silk11 Fabric12 Blouses13 Handkerchiefs14 Shawls/scarves Ties US 258 252 353 6 51 175 Italy15 215 93 22 - 29 23 Japan 171 65 28 3 31 133 Hong Kong 170 134 68 0.5 13 22 Korea 132 86 2 - 4 11 France13 109 71 24 2.5 44 49 Germany13 94 58 20 2 19 41 Singapore 32 28 3.5 - 2.5 4 Source: UN Comtrade 102003, except Korea (2002) 11Raw silk, silk waste, silk yarn, woven silk fabric 12Woven silk fabric (including noil silk and >85% silk blends) 13Women's and girls blouses and shirts 14Handkerchiefs of silk or silk waste 15Includes EU intra-trade 81 Cambodia and WTO: A Guide for Business China is the world's biggest exporter of silk, CAMBODIA ASA TRADER IN ILKAND ILK RODUCTS S S P silk fabrics, and many silk products. In value terms, however, it is closely followed by Italy, whose silk- Officially,Cambodiaimportssmallquantitiesofsilk based fashion products are to be found in up-market fabricsandsilkclothingitems.ItsWTOboundrates, stores and boutiques throughout the world. It is which are those applied; are 7% for raw silk, yarns, evident, however, that valuable mid- and bottom- andfabrics;and35%forsilkclothingandaccessories. end markets exist in most industrial countries for All official imports also are subject to the 10% VAT traditional oriental silk products. Thailand has been rate. successful in these market niches, establishing a Large quantities of raw silk and, especially, silk reputation for Thai silk that is commanding a yarn enter Cambodia informally, while low-priced premium to that of India. Table C1.2 indicates clothing items are also found in the markets. recent export performance by the major suppliers. According to the Silk Forum, 98% of silk yarn Table C1.2 Major Exporters of Silk and Selected Silk Products (US$ millions) Exporter16 Silk11 Fabrics12 Blouses13 Handkerchiefs14 Shawls/scarves Ties China 824 405 226 3 48 138 Italy15 304 272 38 2.9 82 336 India 271 262 25 - 27 - Thailand 19 12 1.8 - 2.7 0.7 Source: UN Comtrade TRADINGCONDITIONS INTHE NTERNATIONAL ILK I S requiredforweavingisimported.Around400metric MARKETS tons, worth some $2.5 million, are largely supplied from Vietnam. Around 12,000 people are estimated The WTO is unlikely to have a big impact on market to gain a living from the silk sector, 10,000 of whom access for the products likely to be exported by are organized into weaving groups. They produce Cambodia. Most markets are already open. In the fabric with a retail value of around $10 million. Of EU, as long as it can satisfy origin requirements and this, approximately $4 million is exported, either technicalstandards(seebelow),thenaccessissubject directly, or through tourism. to the EBA zero duty, no quota conditions. In the The value secured from exports and the US market, Cambodian exports of silk fabric and marketing potential of Cambodian silk goods would silk products will normally fall into the categories of be enhanced if raw silk production could be handloom products and traditional items. This reestablished.Localsourcingwouldalsoremoveany means they attract zero duty treatment while not potential problems relating to US or EU origin rules. being subject to remaining quota restraints. Efforts are moving in that direction through NGO- Both the Singapore and Hong Kong markets sponsoredprograms;approximatelyfourmetrictons are duty free. Silk fabrics entering Korea will of local silk was produced in 2003, with output normally be subject to 13% MFN customs duties, expectedtodoublein2004.Further,sinceCambodian whilescarves,ties,andhandkerchiefsareratedat8%. silkworm fibers are highly regarded for their quality, a Korea also imposes a 10% VAT rate on imports. yellow silk that is marked above Chinese white silk, 162003, except India (2002) 82 Annex C1 - Handicrafts: Silk Products the potential to establish a quality Cambodian silk and products manufactured using them are excluded brand, with its own trademark, is considerable. by technical regulations from the EU market in The current arrangements for importing yarn particular.Sincetheevidenceoftoxicityisveryclear,it haveaddedtothechallengesforexportsofaccessing is not a problem that can be avoided through the quality control and certificates of origin. At the same TBT agreement (See Box 13). time, companies in the Silk Forum and other producers of silk products are faced with further SOURCES AND RACTICAL NFORMATION P I handicaps that increase costs and make products less competitive against those from Thailand. In 1. "SilkReview2001:Asurveyofinternational additiontocertificatesoforigin,exportershavefaced trends in production and trade" - 6th Ed, problems with letters of credit, VAT reimbursement 2002, International Trade Centre. on small and consolidated shipments, and other domestic business costs, like the cost of credit to buy 2. International Silk Association - 34, rue de yarn. laCharité69002LyonFrance: One additional cost for some exported isa-silk.ais-soie@wanadoo.fr products is the need to move to safe and accepted silk dyes. Some traditional Thai-manufactured dyes 3. Tariffclassification (forcustomsdutyrates): aretoxicforhandlers,andpotentiallyforconsumers, 5002 ­ 5007 (raw silk, yarns, and fabrics) 83 84 Annex C2 Handicrafts: Bamboo/Rattan furniture Cambodia's furniture production sector is not industrial countries. Inexpensive, compared with currently organized for export. Family businesses in hardwood items, and comfortable, garden and Phnom Penh and other major towns are producing domestic furniture of these materials has eaten into relatively high quality furniture in hardwood, the markets for metal and plastic equivalents. bamboo, and bamboo/rattan mixes. While both raw Stylishlydesignedtables,chairs,cupboards,andbars materials and skilled craftsmen exist, domestically are in high demand in hotels and restaurants around producedfurnitureissoldinlocalmarkets.Theworld the world, as well as in Asia. market for well-made rattan and bamboo furniture, Bamboo is produced in Latin America, Africa, however, is vast and growing; US imports alone were and,principally,throughoutAsia.Mostoftheoutput worth over $400 million in 2003. All of the major is for local use. The International Network for producers are Asian countries, primarily China, but Bamboo and Rattan (INBAR) estimates that with Vietnam establishing itself quickly. China's domestic trade and subsistence use of bamboo penetration of the US furniture market has already worldwide is worth $4.5 billion a year, with bamboo provoked protectionist action by Washington. This exports adding a further $2.7 billion. mayprovideanopportunityforotherproducers.For Import demand for bamboo products is very the moment, however, Cambodia possesses neither high,yetthenumberoflargeexportersiscomparatively the appropriate organization of producers, nor the small and overwhelmingly Asian. Table C2.1, on the physicalinfrastructure,toengageinlarge-scaletrade. next page, shows the main importing countries for Thatmayrequiretheinvolvementofforeignpartners. bamboo/rattan furniture. Because specific customs The following notes apply largely to potential classificationscodesforbambooandrattanproducts trade in furniture made from bamboo/rattan mixes, are only now being introduced, the figures quoted the market for which is particularly strong in major maybeexaggeratedslightlythroughtheinclusionof developed countries. It is also recognized that furniture items of other similar materials.M bamboo is the basis for a very wide variety of products (1,500 uses are said to be documented), Table C2.1 Major Importers of including papermaking, construction materials, Bamboo/RattanFurniture flooring, handicrafts, and food, as well as furniture. Importer17 Trade value Quantity Cambodia has the potential to enter several of these ($US millions) (metric tons) markets. US 401 n.a. France 82 28,370 THEWORLDMARKET FOR AMBOO B /RATTAN Japan 49 16,988 FURNITURE UK 48 16,300 Germany 44 14,590 Hong Kong 38 21,969 As product designs and quality standards Italy 28 9,711 have improved, furniture of bamboo and rattan Spain 25 7,422 construction has become a major growth market in Source: UN Comtrade 172003 data, except Spain and UK (2002) 85 Cambodia and WTO: A Guide for Business With the exceptions of Hong Kong and Japan, Australia imposes a 5% duty. Imports from China which appear to have peaked, all these markets have face a 5.6% tariff rate in the EU. Under its bilateral grown strongly over the past five years, the US by agreement, Cambodia receives duty-free access to 15%, France 28%, Italy 40%, and Spain 40%. Table Thailand on chairs made of bamboo and similar C2.2, below, indicates the five major exporters of materials. bamboo and rattan furniture worldwide. So rapid has been the build up of China's furnitureexportstotheUSthatdomesticcompanies Table C2.2 Five Major Bamboo/Rattan have sought protection. In the period 2000-2003, Furniture Exporters imports of wooden furniture from China into the Exporter18 Trade value Quantity US expanded threefold, from some $360 million to (US$ millions) (Metric tons) $1.16 billion. As a result of a petition from US China 242 222,333 manufacturers and trade unions, the Department of Indonesia 94 64,400 Commerce imposed, in January 2004, preliminary Philippines 78 25,576 antidumping duties between 10% and almost 200% Malaysia 12 n.a. (partially revised in July) on products from a large Vietnam19 60 n.a. number of Chinese companies. These duties covered wooden furniture, rather than bamboo/ Sources: UN Comtrade and Vietnam Ministry of rattan furniture. However, if bamboo and rattan Planning and Investment productsareseentobeescapingdutiesanddisplacing US-built wood products, it is impossible to rule out In the past five years, Chinese exports of further measures against Chinese imports. bamboo and rattan furniture have more than doubled, while those of Indonesia have risen nearly CAMBODIA AS A OTENTIAL XPORTEROF P E BAMBOO/ fivefold.Malaysia'stradevalue,however,hasdropped RATTANFURNITURE by around a quarter, and the Philippines saw a fall of one-fifth during 2000-2002. Vietnam is building its The potential exists to export a number of market share rapidly. bamboo-based items, and some of these are already Exploitation of bamboo resources may be being investigated. Furniture of the kind discussed affectedbyincreasedconcernamongenvironmental aboveisarelativelyhigh-valueproductforwhichthe organizations over the potential loss of biodiversity financial benefits of international trade could be among the 1200 woody bamboo species. As many considerable. It is observed that the quality of as half of these species may be at risk through bamboo/rattan furniture produced in outlets in deforestation, according to a report by INBAR and Phnom Penh is on a par with, and sometimes the United Nations Environment Programme exceeds, products of Vietnamese and Chinese origin (UNEP) in 2004. At the same time, INBAR has available in European stores. noted that while a sixty-foot tree, cut for market, Organizing and investing in export capacity will takes 60 years to replace, a sixty-foot bamboo plant be a major undertaking, which might only be can be replaced in 59 days. possible with a foreign partner. At the same time, therawmaterialsarenotinshortsupplyinCambodia. TRADINGCONDITIONS FOR AMBOO B /RATTAN Equallyimportant,sincebambooisdefinedasagrass, FURNITURE rather than a tree, its manufactured products should not be affected by export taxes on wood, or the Developed markets for bamboo and rattan furniture export quota/licensing arrangements that apply to are essentially open. The EU, US, and Japan all offer wood products. Some institutional efforts have been duty free access for products from Cambodia. made to train skilled craftsmen without noticeable 18China and Malaysia 2003, Indonesia and Philippines 2002 19All bamboo and rattan products of which furniture would be the highest value item 86 Annex C2 - Handicrafts: Bamboo/Rattan furniture success.Yettheskillsclearlyexistatthefamilylevelin 2. INBAR database on bamboo and Phnom Penh, and possibly in other areas, to rattan trade: manufacturequalityfurniture.Anexportsectormight http://www.inbar.int/trade/main.asp be best based on extending that existing expertise. 3. InternationalTropicalTimberOrganization SOURCES AND RACTICAL NFORMATION P I h t t p : / / w w w . i t t o . o r . j p / l i v e PageDisplayHandler?pageId=1 1. Company trading Cambodian bamboo and rattan products: "Design and Manufacture of Bamboo and www.basketsofcambodia.com Rattan Furniture", 1996, UNIDO. 87 88 Annex D Garments As Cambodia's major export sector, the garment TableD.1 Cambodia'sImportsandExports sector depends greatly on future developments in of Textiles and Textiles Products the WTO. The special conditions applied to the global textiles and garment sector for forty years Year Imports Exports terminated in January 2005. Without guaranteedquota 2000 480 940 accesstotheUSmarket,itisfearedthatCambodia,like 2001 570 1130 most other low-cost producers, would be eliminated 2002 710 980 byChina.Inreality,thesituationismorecomplicated. 2003 796 1640 Therearesignsofastrongreactiontothedominance (Customs value in US Dollars, Millions) ofChinaintheUnitedStatesgarmentmarket.China's Source: Customs Department special WTO accession terms allow for its textiles and clothing exports to be controlled by importing In volume terms, Cambodia is now the 14th countries. Other WTO instruments exist that may largest garment supplier to the US. It has secured alsobeusedtocreateobstaclestocontinuedgrowth this position through an unusual bilateral textiles in market penetration by Chinese producers. Given agreement, under which US import quotas in some those possibilities, importers and retailers in of the most profitable market segments were developed markets will need to diversify their offered, in return for sustained observance of inter- suppliers. Cambodia has some advantages: it has a national labor standards in Cambodia. The quotas positive record on labor rights, and may be able to could be increased annually by up to 15%, based on secure preferential access in major markets. But, reviews by the International Labor Organization Cambodia needs to meet origin conditions for (ILO), of labor conditions in a cross-section of duty-free access to the EU. This means developing Cambodia's 186 garment factories. The quotas were anindigenoustextilessector,orevolvingacoordinated auctioned.Sincetheyofferedthegarmentcompanies ASEAN approach to garment production. a guaranteed share of the US market, producers were Encouragingly, Chinese garment manufacturers are partially sheltered from competition and able to stepping up their investment in Cambodia. commandhighpricesfromimporters.Thisfavorable The success of the Cambodian garment sector situation attracted investment from Hong Kong, as the country's top exporter is well known. From Taiwan,China,Singapore,SouthKorea,andtheUS, exports of less than $5 million in 1994, the largely as well as from Cambodia itself. foreign-owned clothing industry in Cambodia had Of Cambodia'scurrentexportsectors,theWTO built up its overseas shipments to a value of over will probably have more impact on the garment $1.6 billion in 2003. The dominant US market sector than any other. However, this is due to two accounts for 71% of Cambodian garment exports, particular conditions: the exceptional treatment of although, in a few product categories, EU markets textiles and clothing in the WTO, and the special areindividuallyorcollectivelyverysignificant.Overall, position of China as a WTO member. the EU takes 27% of Cambodia's garment exports. The garment sector is also Cambodia's biggest TEXTILES AND CLOTHING IN THE WTO importer, since fabric, yarn, and garment pieces are sourced from China and other regional suppliers. As is the case for agricultural goods, textiles and Table D.1 illustrates the near continuous growth in clothing has long been an exception to normal trade imports and exports over the past four years. rules. In the early-1960s, GATT established a legal 89 Cambodia and WTO: A Guide for Business system of quotas as an exception to the normal rule In particular, over the past five years, the US has that forbids quantitative restrictions on industrial establishedtworegionaltradedeals,theAfricaGrowth goods.Thesystemwasinitiallyputinplacetoprotect and Opportunity Act (AGOA) and the Caribbean the cotton textiles producers of Europe and the US, Basin Initiative, that contain complex access which had been dominant since the nineteenth arrangements for garments, including the use of century, but were facing intense competition from US-made fabrics and yarn. developing countries. The arrangement eventually developedintotheMulti-FibreArrangement(MFA), WILL THE EMOVALOF R ATCQUOTASMEAN AN END which permitted the imposition of quotas on all TOALL EXTILESAND LOTHING RADE ROTECTION T C T P ? yarn, fabric, garments, and other products, whether of natural or synthetic raw materials. As explained in Chapter 9, the WTO leaves Despite forty years of protection, the textiles various options for governments to protect their and clothing industries of the industrialized world manufacturers from import competition. In the case nevertheless declined. The MFA proved expensive of garments, it is more than likely that use will be for consumers and a drag on the economic made of antidumping duties and safeguard development of poor countries that had a competi- measures (see boxes 15 and 17). However, abusive tive advantage, but little or no quota access. It was use of these WTO provisions would be challenged also a system liable to corruption. At the conclusion under the dispute settlement procedures. Thus, there of the Uruguay Round, in 1993, it was finally agreed is a limit to the traditional means of counteracting thattheMFAshouldbeterminated.Initially,theMFA import competition. quotas affecting WTO members were transferred to China represents the most competitive a new regime called the Agreement on Textiles and challenge for importing countries with politically Clothing (ATC). Under the ATC, quotas were to be sensitive domestic textiles and garment sectors, as phased out in four steps over 10 years. Hence, the well as for less-competitive suppliers. Therefore, the industryfacedadeadlineattheendof2004whenthe most likely reaction in the first period of quota-free advantages of quota-based access ended. trade will be recourse to the special arrangements in In principle, the Agreement on Textiles and China's WTO accession agreement. The special Clothing (ATC) was a big victory for developing textile safeguard, which will apply only to China until countries. For the first time, they would have the end of 2008, provides relatively lax criteria for unrestrained access to developed (and advanced governments to determine whether a protective developing) country markets, and fair competition measure should be put in place. among suppliers. However, there were three To date, very little recourse has been made to complicating factors. the special textiles safeguard. It is clear that the US First, although only three markets are still and the EU are politically unwilling to take risks with affectedbyATCquotas,theUS,EU,andCanada,the their fast expanding economic relationships with schedules for phasing them out were heavily China. However, in September 2004, a group of US back-loaded, meaning that the most sensitive textiles trade associations said they would petition productswereleftuntilthefinalstepthisyear.Rather the US government to take action against the threat than facing a gradual adjustment process, the posed by China to domestic manufacturers (and to industry is now faced with a sudden and severe preferential suppliers). The timing of this request, at upheaval. a key point in the Presidential election campaign, Second,nobodytrulyappreciatedhowdominant was clearly significant. Whether or not the new a supplier China would become in the late 1990s. administrationrespondstothisrequest,itisinevitable TheprospectofChinesesupplierstakingthebiggest that further petitions will be launched after January share of the opportunities of quota-free trade, and 1,2005,particularlyifdomesticfactoryclosuresand perhaps even squeezing out competitive producers joblossesaccelerate. in India, Pakistan, and Bangladesh, was not seen. Some garment exporting developing countries, Finally, the ATC did not allow for the distorting together with textiles manufacturers in the US and effectsofbilateraltradedealsandregionalpreferences. Europe, have raised the question of delaying the 90 Annex D - Garments termination of quotas under the ATC. No analysis of Cambodia's garment sector revealed that governmenthasformallysoughtsuchadecisionfrom the administrative costs associated with shipping a the WTO, yet. Even if such a request were made, it 40-footcontainerofdenimjeanscouldbeover$1000. wouldseemvirtuallyimpossibletosecureaconsensus Nearly 85% of the total was accounted for by fees among members to adopt a delay. Unusual for a andinformalpaymentsrelatedtotheimportclearance WTOagreement,Article9oftheATCexplicitlystates: of raw materials and their transport, post-production "There shall be no extension of this agreement". transport, and export clearance. Disruption of shipments through repeated inspections by CAN THE AMBODIAN ARMENT NDUSTRY OMPETE C G I C Camcontrol and other government agencies INTHE OST P -QUOTAWORLD? was cited as a major handicap for the industry's competitiveness. These additional costs and The Cambodian garment industry has succeeded in interferences hinder Cambodia's ability to fully export segments outside those guaranteed through utilize its US quotas; on average, exports only fill US quotas. Indeed, these non-quota exports have 63% of available quota. beenincreasingmorequicklyandhavereachedahigher The government is fully aware of these volumethanquotatrade. However,pricesforproducts constraints to the growth of businesses, and is sold within quotas are nearly five times higher than working to address them. It has committed itself to non-quota prices, which have been declining for a number of reforms which are to be completed several years. Clearly, whatever the price impact of a by December 2005. To achieve these, a quota-free market may ultimately be, Cambodia's cross-agency reform team has been established, and competitiveness will be tested. the government has promised transparent Fortheimmediateterm,Cambodiawillbenefit performance measurement in which the private from its reputation as a country where high labor sectorwillplayarole. Thegovernmenthasalsoagreed standards are maintained. According to an IFC/ to replace the current frequent and discretionary WorldBankstudyreleasedinDecember2004,which inspections with a risk management approach in surveyednearlyhalfofCambodia'sgarmentbuyers, which inspections will be selective, based on the risk 60% of buyers said they planned to increase their profile of the shipment. To improve documentary garment purchases from Cambodia. And none and compliance procedures, the roles of various planned to buy less. Findings also showed that agencies will be rationalized, and procedures will be Cambodia's overseas buyers rate labor standards as integrated in a "Single Window". The Ministry of one of their top priorities in sourcing garments, and Industry, Mines and Energy, the Ministry of consider Cambodia to have an advantage in this Commerce and Customs and CamControl have regard over Bangladesh, Thailand, Vietnam and already agreed to jointly inspect factories so that the China.Howeverbuyersalsoindicatedthatalongwith certificates required for exporting (Processing, maintaining good labor standards, Cambodia must Origin, Export License) can be issued without bring down the high cost of doing business that furtherinspection. ThePrivateSectorForumwillact result from unofficial fees. According to the study, as a vehicle for monitoring, as well as for lodging bribe payments alone amount to a reported average private sector complaints about implementation. of 5% of Cambodian firms' sales. Because garment production costs in China are an estimated 15-20% MARKETACCESSCONDITIONS AFTER ANUARY J 1,2005 lower than in Cambodia, this 5% and other costs of doingbusinesscanrenderCambodiauncompetitive. US tariff rates on products in the garment categories Consideringvalueaddedperworker,Cambodian most relevant to Cambodian exports vary widely and labor cost competitiveness lags behind major arecomplex.Theyrangefromlessthanfivepercent, producers like Bangladesh, India, Pakistan, and toalmost30%,andveryfewhaveafavorableGSPrate. China. However, even if labor productivity can The EU's MFN tariffs on similar products are be improved, the industry also faces high generally 12%. In principle, Cambodia would benefit administrative costs and corruption. A value chain from duty free and quota free access under the EU's 91 Cambodia and WTO: A Guide for Business EBA initiative. However, most Cambodian clothing OTHERELEMENTS THATMAY MPROVE THE I items fail to meet the EU's rules of origin criteria, SITUATION principally that at least 40% of the cumulative value added must come from within ASEAN. One Given the cost disadvantage in the Cambodian estimate suggests that imports account for an garmentsector,somepreferentialbenefitswouldbe average of 63% of Cambodian clothing production valuable. Cambodia's record on labor standards could costs; yarn and fabrics are generally imported from lead the US to consider special arrangements to bring China,HongKong,andTaiwan,ratherthanASEAN Cambodia's status closer to that of the African countries. countriesthatbenefitfromAGOA,theUSpreference The future of garment trading is largely scheme for Africa. In the EU, access to EBA terms dependent on China's continued influence over the would be a big advantage, but would require the EU sector. However, fears over China's future trading to change its rules of origin criteria, or Cambodia to weight are often exaggerated. It is doubtful that increase the cumulative value-added from ASEAN. China will be able to continue growing its exports to Twoapproacheshavebeensuggestedtoincrease the major markets at the rate of the past few years, the domestic input into garments produced in with or without quotas. There are limits to the Cambodia. One is to develop a cotton industry, degree to which manufacturers and trade unions in which could feed indigenous yarn and fabric these markets will allow themselves to be production. In the 1960s, Cambodia had 20,000 ha overwhelmed, even if China may be the dominant growing cotton. Currently, there are only a few large economicforce. cotton farms, and even fewer integrated cotton and If China does continue building its export trade production farms. For the moment, Cambodia is relentlessly, it will likely provoke a response, handicapped by high import costs for seed and probably through the special textiles safeguard. This fertilizers. Textile production is similarly burdened may come from the US, probably followed by the by the cost of importing chemical bleach. In each EU, and maybe Canada, or it may come from large case, Chinese cotton farmers and textile producers developing countries. Alternatively, China may have significant advantages over their Cambodian anticipate this kind of a reaction and look for other competitors. Some in the industry believe a textiles options for growth. There is evidence that China has industrycouldbedevelopedwithinaspecialeconomic beendeliberatelybuildingupmarketsharesoverthe zone, if water treatment and electricity could be past few years, in anticipation of further advances provided at competitive prices. being blocked in the future. A second approach is the development of a This is a possible explanation for the recent regional textiles/garment industry within the inflow of Chinese investment (60% of the total) ASEAN group. This might mimic the African, Caribbean,Andean,andCentralAmericangroupings into the Cambodian garment sector. Chinese that now enjoy preferential access to the US textiles producers need to diversify and maintain andclothingmarket;althoughafullscaleUS/ASEAN some options in case of potential trade protection free trade agreement seems unlikely. However, an in its biggest markets. The same is true of informal regional initiative that integrated textiles retailers and importers in the major markets; and clothing production might eventually serve to everyone has to plan for a backlash against China, meet the requirements of the EBA origin rules. even if does not come. Vietnam is likely to have to While the EU and US markets are currently continue to work within quotas for the time being, predominant, it would be wrong to ignore the since it is not yet a WTO member. Cambodia, on the potentialofothersignificantconsumers,forexample, other hand, is a WTO member, an LDC, and has Japan. built up a reputation for the observance of labor One further potential marketing tool would rights. These factors help to mitigate fears of be the adoption of a social responsibility label, by Chinese dominance for Cambodia, even if the cost whichtosecureconsumerawarenessoftheadvances structure is too high, and the administrative made in Cambodia on labor conditions, in contrast framework corrupt. to some of its competitors. 92 Annex D - Garments SOURCESAND RACTICAL NFORMATION P I 4. US garment trade information ­ Interna- tional Trade Administration: 1. Details of the WTO Agreement on Tex- http://www.ita.doc.gov/ tilesandClothingandrelatedWTOactivities: http://www.wto.org/english/tratop_e/ 5. EU garment trade information ­ EU texti_e/texti_e.htm Commission website: http://trade-info.cec.eu.int/textiles/ 2. WTO,"BackgroundStatisticalInformation index.cfm withRespecttoTradeinTextilesandCloth- ing", 20 September 2004, document G/L/ 6. Hong Kong Trade Development Council 692. (See appendix for WTO document website contains comprehensive lists of searchengine.) textile and garment trade associations throughout the world: 3. "Towards a Private Sector-Led Growth http://my.tdctrade.com/webdir/ Strategy for Cambodia. Volume 1: Value directory_detail.asp?catid=1&subcatid=1 Chain Analysis", June 2003, The World &type=3 Bank & Global Development Solutions LLC. Tariff classifications (for customs duties and other trade conditions): 6101 ­ 6217 93 94 Annex E1 Financial Services Lack of access to competitive financial services is servicescompaniesunderthesametermsasapplyto a major structural handicap for trade-oriented domesticinstitutions. TheNationalBank,therefore, development and investment in Cambodia. will continue to license new entrants. These will be Concessions made on banking and insurance subject to the requirements of the Banking Law, servicesintheWTOnegotiationsarenotexpectedto including minimum capital requirements, prudential have significant impact in the short-term. In the safeguards,andaccountingpractices. longer-term, if reforms are put in place, and are The freedom of foreign financial firms to move accompanied by changes in business practices and theirpersonnelintoCambodiawillbecoveredbythe public attitudes towards credit, they may help attract same horizontal terms that Cambodia committed investmentbyforeignfinancialservicesfirms,andin to for all services. This means that executives, extendingtheservicesofexistingbanksandinsurance managers and specialists who are either responsible companies. Whenn risksassociatedwithconducting for setting up a new commercial establishment, or businessinCambodiaareradicallyreducedmoresuch whowillwork,foratleastoneyear,asintra-corporate companies may invest. transferees to branches, subsidiaries, or affiliates in Cambodia will, under specified conditions, be able CAMBODIA'S COMMITMENTS INTHE WTO to secure temporary residency and work permits. Two other banking-related services, financial Chapter 6 offers an explanation of how GATS leasing and the supply of guarantees and operates, and the manner in which individual WTO commitments, are covered by the services schedule. members make services concessions (see Box 10). These, however, are more restrictive, with the right For the principal commercial banking services listed of establishment unbound until relevant laws and below,Cambodia'sWTOcommitmentsofferlargely regulations are put in place. open conditions for foreign suppliers: In the insurance sector, Cambodia committed · Acceptance of deposits and other repayable to open most life and non-life insurance services to foreign providers. However, only licensed insurance funds from the public; ·Lendingofalltypes,includingconsumercredit, companies in Cambodia may deliver insurance mortgage credit, and factoring and financing coverage. Marketaccessforcross-bordercoveragefor of commercial transactions; and, marine, aviation, and transport will be open from 1 · All payment and money transmission January 2009 or, if it is earlier, by the time the services,includingcredit,chargeanddebitcards, relevant laws and regulations have been put in place travelers' cheques, and bank drafts. and a local firm has been authorized. Apart from normal licensing and oversight requirements, there For most of these activities there will be no are no restrictions on the right of foreign insurers to restrictionsonaccesstothemarketortheapplication establish in the Cambodian market. of "national treatment" to foreign firms. Foreign The reinsurance business is largely unrestricted banks will have the right to establishment under the except that companies must reinsure at least 20% of regulations set out in the Law on Banking and their risk in Cambodia Re (the Cambodian Financial Institutions of November 1999. state-ownedreinsurancecompany)until31December Nothing in GATS detracts from the right of 2008. Insurance cover of $500,000 or less must be Cambodia, through the National Bank, to supervise reinsuredlocallyuntil31December2008.Thereafter, and regulate foreign banks and other financial there will be no limitations. 95 Cambodia and WTO: A Guide for Business All insurance companies must be licensed, and 90NGOsprovidemicro-finance. aresubjecttoaregulatoryandsupervisoryframework The insurance sector suffers in much the same established through the Insurance Law of 2000 and way. The market is tiny, returns are small and the its implementing sub-decree of 2001. The WTO incentive to offer innovative insurance instruments is commitments reflect this framework, thus applying non-existent.Thegrowthofmotorvehicleownership the same conditions to foreign insurance services maychangethesituation,aswouldabroaderassertion suppliersastodomesticinsurers.UndertheInsurance ofpropertyrights.Forthemoment, apart from state- Law, all insurers are subject to the supervision and owned CAMINCO and Cambodia Re, two foreign- control of the Ministry of Economy and Finance. ownedcompaniesprovidelimitedinsuranceservices. The Law sets out minimum registered capital requirements and solvency margins for all insurance WILLCAMBODIAATTRACTFOREIGN FINANCIAL companies operating in Cambodia. SERVICESINVESTMENT? CAMBODIA AS A ONSUMEROF INANCIAL ERVICES C F S In the right circumstances, an injection of foreign financial services investment in the Cambodian Since Cambodia is unlikely, in the near future, to economy could be beneficial. It would increase become a supplier of financial services abroad, the competition, encourage the transfer of financial WTO commitments are relevant to the extent that technology and expertise, broaden the range of Cambodian people and companies actually consume products available in the corporate and personal financialservices.Thisisfarfromthecase,atpresent. banking sectors, and potentially push down the cost The World Bank has reported that 94% of ofbankingandinsurance.Thisisclearlythemedium/ Cambodiancompaniesreportedinasurveythatthey long term objective of making WTO commitments do not have a loan, and have never applied for one. to open the financial services market. Financing comes from internal funds; friends and The risks to the banking sector, and therefore family supply as much as 25% of both working and the level of interest rates, are high primarily because investmentcapital.Banksonlyaccountforbetween2 of the inadequacy of collateral. Land and capital are ­ 3% of capital needs. The demand for bank loans notregistered,soofferpoorsecurity.Bankshavelittle fromlargecompaniesisaboveaverage;approximately reason to go to court, either to enforce repayments 25% of manufacturing firms have a bank loan. of loans or to seek access to collateral assets, since Demand for capital has been estimated to thereislimitedconfidenceinthejudiciary.Individuals, exceedsupplyby$100m.Interestratesformicro-credit and sometimes the assets on which their loans are can be in the range of 30-48% per annum, while rates secured, can move to other provinces outside the oncommercialbankloansvarybetween12-24%.Even initial jurisdiction, in which case it is virtually where credit is available, often only 10% of capital impossible to get the local police to act. needs will be covered by the loan. Banks also complain that there is not an Cambodia remains essentially a cash economy. adequate legal framework for making loans to SMEs, Confidence in the banking system, notably among so they focus on large firms for their loan business. private individuals, is low. Debt is avoided. As the Norcantheyrelyoncorporateaccounting,withmany World Bank has commented, in the absence of debt firms preparing one set of accounts for the tax as a growth tool, the rate of economic growth is authorities and another for internal use. Further, the limited by the availability of cash. banksectorbelievesitisbeingpenalizedbycorporate Fourteen commercial banks operate in taxes as official revenues are diminished by Cambodia: five are foreign-owned, and one of those smuggling and informal exports and imports. is only a representative office. Services are limited to In short, foreign financial services firms are taking deposits (less than $400 million at the end of being deterred the current banking and insurance 2000),somecreditcardbusiness,internationalmoney environment. In the absence of greater reform and transfers, and limited trade financing. Specialized different corporate practices, the small banking and banks exist in the agricultural and Small and insurance sectors that exist in Cambodia will remain Medium-Sized Enterprise (SME) sectors. Around providingconstrainedinthefinancialrangeanddepth 96 Annex E1 - Financial Services of products that sustainable economic growth re- quires. SOURCES AND RACTICAL NFORMATION P I WTO agreements and activities related to financial services: http://www.wto.org/english/tratop_e/serv_e/ finance_e/finance_e.htm 97 98 Annex E2 Construction and Related Services In order to develop its infrastructure for export- Forconstruction,engineering,andarchitectural oriented development, Cambodia needs a services,theaccessforforeignpersonnelislimitedby construction sector capable of providing modern, the horizontal commitments made by Cambodia. efficient, and competitive services. Given present Thesecoverexecutives,managers,andspecialistswho domestic constraints, some of that capacity will areeitherresponsibleforsettingupanewcommercial continue to be foreign-owned. At the same time, to establishment, or who will work, for at least one year, be competitive, construction firms need competent in branches, subsidiaries, or affiliates of their firmsin associated services, like transport, engineering, and Cambodia. These personnel will, under specified architectural firms. Cambodia's WTO services conditions,beabletosecuretemporaryresidencyand commitmentsallowrelativelyopenaccessforforeign work permits. firms. However, construction firms need to be able The WTO commitments open up the market to secure materials and equipment on the most for foreign contractors taking on major projects in advantageous terms. In the case of cement, for Cambodia, and potentially establishing themselves instance, imports are expensive and delays in delivery through branches, affiliates, or joint ventures. due to administrative complications are common. Construction is, therefore, one important area of the WILL THE OMMITMENTS HELP C DOMESTIC economy where trade conditions governing both CONSTRUCTIONFIRMS? goods and services are likely to be instrumental in determining output. The WTO commitments are only one aspect of the The following paragraphs look at the overall environment that might attract a more implications of the WTO services commitments durableinterestfromforeignconstructioncompanies made by Cambodia in construction and related thatarecurrentlypresentonasingle-project/contract sectors and at the conditions for importing one basis only. There are advantages for indigenous firms major raw material: cement. in suchaforeignpresence.Evenifmajorinfrastructure projectsareallocatedtoforeigncontractors,Cambodian CAMBODIA'SWTOCOMMITMENTS ON ONSTRUCTION C companiesactassub-contractorsandcanbenefitfrom AND RELATED SERVICES the technological and professional resources of the large firms. Joint ventures or equity participation may Since foreign construction companies are already provide Cambodian firms with access to capital on a active in Cambodia, and are likely to remain so, most morefavorablebasisthanthe15%interestratessome of the WTO commitments provide open access and have to pay to local banks to finance investment and unlimited national treatment. Few limitations exist current expenditure. on market access and national treatment for foreign Increased foreign direct investment, as well as architectural services firms. However, if foreign more aid-financed infrastructure projects, would architectural firms wish to provide cross-border provide a boost to the industry. Yet, as discussed services, they will need to establish a commercial elsewhere in this Guide, investment is unlikely to presence in Cambodia. Further, where a commercial increasewhilecorruptionandthehigh-costbusiness/ presenceisestablished,constructiondocumentswill trading environment are not tackled. need to be organized by a Cambodian architectural Ifthesituationchanges,thenforeignconstruction firm. Thus, the architectural services capacity of companies may be interested in the investment Cambodia should be preserved and strengthened. incentives available in Cambodia. The provisions 99 Cambodia and WTO: A Guide for Business under the Investment Law that require the training Many materials, for example, roofing and plastic of Cambodian staff, including for promotion to resins,areneverdeclaredandenterCambodiaonthe senior positions, could be especially valuable in the basis of a lump sum payment to officials. The hope construction sector, which lacks technical and in the industry is that with the move towards zero professionalexpertise.Thesetrainingprovisionshave customsdutiesinAFTA,informalpaymentsforkey beenprotectedintheWTOservicescommitmentsof imports will eventually be squeezed out. Cambodia. Most imports of cement, however, tend to be There is similar concern among Cambodia's legal. Current Cambodian demand is about 1.2 limited number of architectural firms that foreign million metric tons of cement a year, with Indonesia construction firms too often use their own in-house accounting for about 10% of the market and architects or overseas architectural firms for their Thailand 90%. Domestic production in 2002 was contracts inCambodia.Again,alonger-terminterest estimated at 50,000 metric tons. The Cambodian in Cambodia by major overseas firms might import duty for both bagged and loose cement is support the development of the architectural 15%.Coupledwith10%VAT, thisishigh,especially servicessectorandenhanceitscurrentcapacity. when compared with rates between 0 and 5% prevalent in ASEAN neighbors (except for Vietnam, PLANT AND MATERIALSIMPORTCOSTS ARE A which imposes a 20% duty). With the addition of HANDICAP FOR ONSTRUCTION IRMS C F transportcosts,theaveragepriceofcementinPhnom Penhhasbeenrelativelystableataround$70permetric The competitiveness and business potential of ton. This compares with around $45-60 per metric Cambodian construction firms, and therefore their ton in Malaysia, Thailand, and Vietnam. Prices are abilitytobidasprimarycontractors,isalsodependent likely to rise in the near future as demand in China, on the ease with which capital equipment and raw which is expected to account for 40% of global materialscanbeimportedintheabsenceofdomestic cement use in 2004, strains supplies. producers. Blockages at the ports and frontier crossings are a major complaint. Capital equipment SOURCES AND RACTICAL NFORMATION P I and raw materials, including construction steel, tiles, and cement from Thailand, are subject to delays of WTO agreements and activities related to one week to 10 days. Customs procedures lack constructionandengineeringservices: transparency and firms must pay bribes in order to http://www.wto.org/english/tratop_e/serv_e/ get materials in time to meet construction schedules. construction_e/construction_e.htm 100 Annex F The Experience of Another WTO Member: Uganda As the first LDC to conclude negotiations to accede economicgrowth.APovertyEradicationActionPlan to the WTO, Cambodia is in an almost unique is designed to turn Uganda into a modern economy position. Few other poor nation have had quite the by 2017, by integrating export competitiveness and same experience. There are over 30 WTO members trade reform into the battle for poverty alleviation. defined as LDCs by the United Nations, all of which Under the "Big Push Strategy," the Government joined the WTO as founding members, except for is seeking to transform Uganda from one of the Cambodia and Nepal. Members of GATT, they world's poorest economies into a world-class accepted the applicable conditions set out in the provider of services, as well as a producer of high Marrakesh Agreement establishing the WTO, and qualityagri-products. became members of the new institution with very Uganda's development, however, is hampered few demands made of them. by many of the same handicaps that hold back ManypoormembershaveusedtheWTOframe- Cambodia. Uganda, which is land-locked, has work to reform their economies and their trade feeble infrastructure, high utility prices, and other regimes to a limited degree. One country that has production costs that make it difficult to enhance dramatically reformed, and might therefore be competitiveness. The agricultural sector, accounting regardedasonasimilartracktoCambodia,isUganda. for around 42% of real Gross Domestic Product The results from WTO-oriented reforms have been (GDP) and 80% of employment, has suffered from mixed, but encouraging. Some observers, including drought and plant diseases. According to the 2003 theWTOitself,believethatsuccesswouldhavebeen Corruption Perceptions Index from Transparency clearer had reforms gone further; nearer, perhaps, to International, it is among the most corrupt nations some of those implemented in Cambodia. in the world. Uganda has sought to provide a positive TRADEREFORM DRIVEN BY POVERTY REDUCTION environment for inward investment. The Uganda OBJECTIVES Investment Authority was established as a one-stop shop to encourage and facilitate investment. There The Republic of Uganda is an East African nation are few limits on equity investment by foreigners, with a population of 22 million and an area of andtaxincentives,includingimportdutyconcessions 236,000 sq. km. In 1999, Gross National Product andVATdeferral,areavailable.Uganda'sprivatization (GNP) per capita was $320. Cambodia has a program has led, by 2001, to the divestment of 108 population of 13.3 million, an area of 181,000 sq. out of 148 public enterprises. km., and a GNP per capita in 1999 of $280. As well as being an original member of the Ugandahaspursuedeconomicreformandtrade WTO, Uganda has sought to develop its trade liberalizationfornearlytwodecades.LikeCambodia, through regional integration, particularly through the thechangescameprogressivelyafteraperiodofcivil Common Market for Eastern and Southern Africa waranddomesticturmoil.Thegovernmenthasbeen (COMESA) and the East African Community committed to streamlining the economy and (EAC). However, as a trade policy review1 by the turningtheprivatesectorintotheprincipalengineof WTO pointed out in 2001, lack of trained and 20Under the WTO's Trade Policy Review Mechanism, each member is the subject of a comprehensive review, by the rest of the membership, of the entirety of its trade and trade-related policies. The major trading nations and the EU are reviewed every two or three years; developing countries less often. The reviews are intended as a guide for governments in the implementation of their WTO obligations. They are not legally binding. The review process also provides the members with an opportunity to explore the problems its exporters face in their own markets. 101 Cambodia and WTO: A Guide for Business experienced government personnel, and poor that the activities of the UEPB have so far not been coordination among ministries, has made it difficult as successful as hoped. to manage trade arrangements effectively to The Bank of Uganda provides limited export implement reforms and reap benefits. finance support through the Export Refinance Scheme (ERS). The scheme is meant to support CUSTOMS DUTIESSIMPLIFIED AND REDUCED non-traditional and non-perishable products for export. The finance is channeled through local As Cambodia has done more recently, Uganda has commercial banks, and includes pre- and post- drasticallyreformeditstariffstructure.In1995,afive- shipmentcreditsinavarietyofformstocoverworking band structure was reduced to just three bands (zero, capital requirements. Medium term loans, usually up 7%, and 15%). This required the lowering of to80%ofprojectcosts,arealsoavailabletoexporters maximum duty rates from 60% to 15%. Around forinvestmentininfrastructure,suchascoldstorage, 16% of all tariffs are duty free, while nearly 40% at- warehousing,cleaning,drying,andpackagingfacilities. tract the maximum 15% rate. The simple average in An Export Credit Guarantee Scheme, under the 2000-2001 was 9%. However, there is an import ERS, was established in 2000 to guarantee a portion licensing regime, which can add a 2% commission, of credit risk on commercial loans for working and a 4% withholding tax, both of which have raised capital to exporters of non-traditional products. In concerns in the WTO. Excise duty is normally 10%, 2001,COMESAlaunchedtheAfricaTradeInsurance but can rise as high as 130% for cigarettes. Agency to improve the terms of trade finance in Ugandaprovidespreferentialtarifftreatmentto participating African countries. Supported by the other members of COMESA at zero, 4%, and 6%. WorldBank,andincooperationwithprivateinsurers, Unlike Cambodia, however, although Uganda the scheme is intended to provide easy access to applies relatively low MFN customs duties, its political risk insurance for trade transactions. commitments in the WTO are very light. In 2001, Uganda has also moved decisively in the area of only 15.4% of Uganda's tariffs were bound in the standards. The Uganda National Bureau of WTO(seeChapter7forthedifferencebetweenapplied Standards (UNBS) has developed over 250 Ugandan and bound rates of duty). While all agricultural standards in the fields of food and agriculture, tariffs were bound, less than 3% of non-agricultural building materials, electrical items, and chemicals. It tariff rates were. Even where Uganda's tariffs are has also participated in regional standards setting and bound, it is at high levels; 80% on most agricultural harmonization. Nationally, a Technical Committee products, and 40-70% on non-agricultural lines. consisting of academics, manufacturers, exporters, Ugandawasencouraged,duringits2001tradepolicy and consumers drives standards setting. UNBS has review, to increase the level of its tariff bindings, and established laboratories for testing, some of which to reduce the difference between bound and applied have been accredited in South Africa or are seeking tariffs,inordertogainpredictabletradingconditions internationalrecognition. for traders and investors. In fact, Uganda is not UNBS has developed a standards quality mark unusual for least-developed countries in the WTO. that it issues under license. The mark indicates that In contrast, Cambodia has bound 100% of its tariffs the manufacturer is capable of meeting Ugandan or and has a comparatively narrow gap between its internationally accepted standards. applied rates and its WTO bound rates. However, there has been much criticism of the government's commitment to standards, and of the INITIATIVES TO ROMOTE P EXPORTS lack of capacity and funding of the UNBS to build an adequate partnership with the private sector. A Uganda Export Promotion Board (UEPB) was New legislation on SPS measures has been established in 1996 to promote exports in regional introduced in recent years. Among other things, this and global markets. It develops strategic initiatives, covers the relatively heavy quarantine regulations for providestradeinformation,developsexportingskills, the import of live animals, plants, and seeds. andundertakesbasicmarketresearch. The2001WTO Over the past few years, Uganda has been trade policy review of Uganda suggests, however, revising its anti-dumping and countervailing to bring 102 Annex F - The Experience of Another WTO Member: Uganda them into conformity with the WTO. It has also companies, three institutions that include micro- been developing its IP laws and public procurement finance, a foreign currency exchange, and a stock practices. exchange. New regulations on customs valuation were There are no restrictions on foreign ownership introduced in 2000. Based on the WTO rules (see in the financial services sector, provided that the Box 5), these allow for invoice-based transaction minimum standards and requirements are met and values as the primary means of assessing duties. A areconsistentwithinternationalbestpractices. There specific procedure for valuation appeals has been arenodepositrestrictionsonforeignresources.Foreign introduced, which leads ultimately to a hearing by professionals, working in financial institutions, are the Tax Appeals Tribunal. acceptable provided they satisfy the standards and qualifications set out by the Bank of Uganda, which REFORMS IN GRICULTURE AND ERVICES A S also apply to Ugandans. Ugandans are permitted to borrow from abroad. Agricultural policy reforms have been aimed at Interest rates are market-based. However, given diversification away from the staples of coffee, theriskconsiderations,asinCambodia,ratesarehigh; cotton,tea,andtobacco.Themarketingofagricultural around 20%. Nevertheless, there has been an inputs has been liberalized, export taxes have been improvement in the financial performance of the eliminated (except for coffee), and trade restrictions banking sector. The ratio of non-performing loans reduced. Some protection remains in place for the to total private sector loans has been declining. The agriculturalsector,notablyforcertainvegetables,fruit capitalbaseofthebankingindustryincreasedbymore and nuts, and a few animal and fishery products, than 50% in fiscal year 1999/2000, and commercial where a maximum 15% tariff is applied. bank deposits expanded by almost 16% in the first In services, the government has progressively nine months of the same fiscal year. divested out of financial services and has partially There was a decline in licensed insurers and reformedthetelecommunicationsindustry.However, reinsurersinUgandainthelate1990s.Locallyowned Uganda has commitments under GATS in only the companieswereunabletocomplywiththeprovisions tourism and telecommunications sectors. of the new Insurance Statute, and some operators The Big Push strategy focuses on eight sub- could not meet the minimum capital requirement sectorsinwhichUgandahasapotentialcompetitive that became mandatory in April 1998. As of advantage, most of which are services, namely September 2001, there were 17 insurers, 27 licensed educationservices,medicalservices,informationand brokers, 212 agents, and 10 loss assessors. There is communicationstechnology,printingandpublishing, one state-owned company, the National Insurance financialservices,andaircargologistics. Theemphasis Corporation. The number of foreign companies of this strategy is on streamlining government rose to six as of September 2001. machinery to promote the growth of the private sector, and enhancing confidence among investors in HOW HAS TRADE-ORIENTEDREFORM INUGANDA these sub-sectors. PAID-OFF? FINANCIALSERVICES ARE OPEN BUT NTEREST , I RATES Although, in WTO terms, Uganda has not gone as HIGH far in its autonomous reforms as Cambodia did in its accession negotiation, Uganda is nevertheless Thereare17 commercialbanks,sevenofwhichhave regarded, among sub-Saharan countries, as a good a majority foreign ownership and account for 50% performer in terms of economic liberalization. of the assets of the banking system. The one Certainly, the resolve of its political and business publicly owned commercial bank, which has the leaders to see the country integrated into the global biggestnationalnetworkofbranches,willbedivested economy,inamannerconsistentwithitsdevelopment by the Government. Other financial institutions needs and restraints, is not in question. include: seven credit institutions, one building Economic growth has been consistently society, one post office savings bank, 17 insurance impressiveforatleastadecade.AnnualGDPgrowth 103 Cambodia and WTO: A Guide for Business moved from an average of 3.7% in the decade 1982- Imports of goods and services rose from $1488 mil- 92 to almost double that during the following ten lion in 1995 to $1636 million in 2002. years to an average of 6.7%. However, the total figures hide important Uganda has been successful in attracting foreign structural changes in the make up of Uganda's investment. FDI increased21 from an average of $24 exportsofgoods.Traditionalexportshavegivenway, million per year in the period 1985-95, to be for a variety of reasons, to a range of non-traditional consistentlyabove$200millionannuallyfrom1998, products (see Table F.1 below). reaching $275 million in 2002. (Cambodia had an The biggest change has been the decline in FDI inflow of $243 million in 1998, but only $54 earnings from coffee exports. Nearly five million millionin2002.) OverhalftheinvestmentinUganda Ugandans are believed to be employed in the coffee has gone into the manufacturing sector, and only sector, where 90% of production is by smallholders. around 7% (1991-98) into agriculture, forestry, and Thecountryistheninthbiggestproducerintheworld, fishing.Othersectorsofinteresttoforeigninvestors but with only a 3% share of the global market in havebeentourism,realestate,mining,transport,and 2000, it has little impact on prices. In the late 1990s, communications. Financial services have begun to Ugandasawitscoffeeexportshitbycollapsingprices, attract the attention of foreign suppliers. Generally, down by an average of almost 50% between 1995 services have become the dominant portion of the and 2000, and by declining production due to wilt Ugandaneconomy,accountingfor46%in2002.The disease,drought,andanageingcoffeetreestock. agricultural sector has declined from almost 54% of Despite active government intervention in GDP in 1982 to 31% in 2002, while industry has the sector, coffee's importance as a Ugandan export doubled in importance from 11.4% to 22.7% in the has moved from a 55% share (by value, all exports) in same period. 1998, to a 19% share in 2003. Cotton, tea, and TableF.1ProgressiveChangebetweenTraditionalandNon-TraditionalExports 1998 1999 2000 2001 2002 2003 Non-traditional 182,877 137,286 190,302 278,552 284,905 321,141 Traditional 353,870 341,464 211,343 173,213 182,700 201,397 Total 536,747 478,750 401,645 451,765 467,605 522,538 (Export values in US Dollars, thousands) Source: Uganda Bureau of Statistics More than half of FDI flows to Uganda tobacco, the remaining three traditional agricultural originate with investors in the UK, Canada, Kenya, exports, have all taken a larger share of Ugandan the US, South Africa, and India. exports during the same period (3%, 8%, and 8% Yet exports have disappointed. Uganda has respectively). traditionally imported more than it has exported, for Cotton is especially important as an industry, both goods and services. Since 1994, the deficit on employing up to 1.4 million people at all stages, trade in goods has steadily grown with total exports including the manufacture of textiles and clothing. remaining stagnant and imports rising significantly. However, only raw cotton is exported. Production is In 2002, exports of goods and services together were much less than in the past. Thirty years ago output worth $699 million, about the same as in 1995. was more than four times greater than current levels. 21UNCTAD FDI/TNC database 104 Annex F - The Experience of Another WTO Member: Uganda NEWPRODUCTS ARENOW AKING OVER T Uganda also has plentiful livestock, including cattle. In the 1990s a successful trade in cattle skins Table F.2 shows the value of exports of three wasdeveloped. products of which Uganda had little record as a trader prior to the mid-1990s. WHERE ARE UGANDA'S MARKETS? The fish export business has been developed on the basis of the country's extensive natural lakes TheEUisbyfarUganda'slargestmarket,taking33% andrivers,anditsplentifulfresh-waterfishresources. of its exports in 2002. Uganda benefits from special The sustainable fish catch is estimated at 300,000 trading terms with the EU, notably EBA conditions, metric tons per year. The government issues licenses as well as the preferential arrangements under the for industrial fish processing, commercial fish Cotonou Treaty for African, Caribbean, and Pacific farming, and boat building. An environmental countries. In the rest of Europe, Uganda has been impact assessment is required before a license for a notablysuccessfulinSwitzerland,whichtakesnearly15% fish plant is issued. Foreign investment in the sector of its exports, largely coffee. It has not, to date,been is being sought actively. successful in the US (1.97%) and Canadian markets. Table F.2 Export Trends of Non-Traditional Products 1998 2000 2002 2003 Value % Value % Value % Value % Fish and fish products 39.9 7.43 30.8 7.67 87.9 18.8 87.4 17 Maize 9.35 1.74 2.44 0.61 10.6 2.27 13.7 3 Vanilla 1.26 0.02 0.78 0.19 6.9 1.48 11.98 2 Cut flowers 7.5 1.4 9.9 2.47 17.8 3.81 22.1 4 (Value in US Dollars, Millions; % shares of total exports) Source: Uganda Bureau of Statistics In 1997-1999, the EU banned fish imports from Uganda's regional ties, however, have been Ugandaafterapoisoningscare.ThisSPS-relatedban effective. Some 23% of its 2002 exports went to resulted in an estimated loss of US$30 million of COMESA members and over 9% to South Africa. exports. Traderecoveredrelativelyquickly,however. The EU is also a major market for fresh cut INFORMATIONSOURCES flowers. With special airfreight innovations, the transport of cut flowers between continents has 1. WTO Trade Policy Review of Uganda, become common. Roses and other flowers are 2001. Document WT/TPR/S/93. shippedfromUgandatotheNetherlands,fromwhere www.wto.org ("Documents online") they are moved to at least ten different markets. The 2. Uganda Export Promotion Board and sectorhasexpandedrapidlyfromonlyoneproducing exporters associations contacts: farm in the early 1990s. http://www.ugandaexportsonline.com 105 106 Appendix 1 Information Resources 1. WTO rules, agreements and activities: 8.WTO services schedules: www.wto.org http://www.wto.org/english/tratop_e/serv_e/ serv_commitments_e.htm 2. WTO documentation. Go to document search facility and follow the directions: 9. Applied tariffs http://docsonline.wto.org/gen_home.asp? a. AFTA 2004 CEPT rates, country-by-country: language=1&_=1 http://www.aseansec.org/ 2004_cept_bycountry.htm 3.General US trade policy information: b. US: http://hotdocs.usitc.gov/ a.USTradeRepresentative: tariff_chapters_current/toc.html http://www.ustr.gov/ c.EU:http://europa.eu.int/comm/ b. Department of Commerce: taxation_customs/dds/en/tarhome.htm http://www.commerce.gov/ d. Australia: c.DepartmentofAgriculture: http://www.customs.gov.au/site/page.cfm http://www.usda.gov/wps/portal/usdahome e.Canada:http://www.cbsa-asfc.gc.ca/general/ d. US International Trade Administration: publications/tariff2004/ http://www.ita.doc.gov/ tablewithamendments-e.html f. Korea: http://www.customs.go.kr/eng/ 4. General EU trade policy information: g. Japan: http://www.apectariff.org/tdb.cgi/ a. DG Trade: http://europa.eu.int/comm/ ff3235/apeccgi.cgi?JP trade/index_en.htm h. China: http://www.apectariff.org/tdb.cgi/ b. DG Agriculture: http://europa.eu.int/ ff3235/apeccgi.cgi?CN comm/agriculture/index_en.htm i. Other tariff links can be found at: http:// c. Business information centre (Thailand): www.ita.doc.gov/td/tic/tariff/ http://www.deltha.cec.eu.int/bic/ country_tariff_info.htm 5. General ASEAN/AFTA trade policy 10. Applied tariffs, bound tariffs, and trade flows. information (ASEAN Secretariat): The WTO's "Integrated Database" puts together http://www.aseansec.org/home.htm these three elements for all WTO members. The database is not publicly accessible. However, all 6. Trade statistics: member governments, and their delegations in a. United Nations Comtrade database: Geneva, have access. This provides an alternative http://unstats.un.org/unsd/comtrade/ if the sources above are not adequate. b. UN Food and Agriculture Organization (trade, production, etc.), FAOSTAT: 11.Non-tariff measures. These are normally available http://apps.fao.org/default.jsp from each WTO member. See also Box 13 on TBT and Box A1.1 on Sanitary and Phytosanitary 7. WTO bound tariff schedules for merchandise Measures. Agricultural tariff quota information goods: http://www.wto.org/english/tratop_e/ and specific food safety standards are usually schedules_e/goods_schedules_e.htm available on agriculture ministry websites. 107 Cambodia and WTO: A Guide for Business 12. International Trade Centre. Provides practical guidancefordevelopingcountrySMEs: http://www.intracen.org/default.htm 13. World Customs Organization: http://www.wcoomd.org/ie/En/en.html 14. UNCTAD "TRAINS" and "WITS" trade information databases: http://r0.unctad.org/ trains/ 15. United Nations Conference on Trade and Development (UNCTAD): http://www.unctad.org/Templates/Page.asp? intItemID=1421&lang=1 108 Appendix 2 Trade Promotion Support in Cambodia All types of commercial enterprises are required to Information on trade and trade promotion activities register at the MoC. Information on company can also be obtained from Trade Promotion Unit of registration is available at the Legal Department of Cambodian embassies and representative offices the MoC at the following address: aboard. Below is their contact information. Ministry of Commerce Legal Department 1. Mr. Sam Srei Rath, 20A Norodom Blvd. Phnom Penh CommercialAttachétoHCM,Vietnam Ho Saran, Director Add: 180, Dien Bien Phu St. 3rd District, HCM Tel. (855) 16 913653 Tel/Fax:(84-8)8 296 814 Office of Legal affairs Tel (855) 11 813 913 Fax: 855 23 426 396 2. Mr.Yiv Sokhom, Counselor to Thailand In addition to the major role played by the Add:185 Rajdamri Road, Lumpinee, Patumwan, CambodiaChamberofCommerce,theDepartment Bangkok 10330 of Domestic Trade of MoC contributes directly to Tel:(66-2)2546630,2537967,Fax:(66-2)2539859 trade promotion activities by providing assistance to Email:ysokhom@hotmail.com thedevelopmentofbusinessassociations.Individual business people or firms can establish business 3. Mr. Nop Sophorndara, associations on their own initiative. If advisory Attaché to Singapore assistance on the establishment or operation of new Add: 152 Beach Road, #11-05 gateway East, business associations is needed, assistance can be Singapore189721 sought from: Tel: 65-6-299 3028, Fax: 65-6 299 3622 Ministry of Commerce Email:nop_sophorndara@hotmail.com Domestic Trade department No. 65-67-69, St. 136, Sangkat Phsar Kandal 4. Mr. Uch Kim Yon, Phnom Penh Counselor to Malaysia Tel. 855 16 913 518, Fax: 855 23 360 482 add: 83/JKR 2809, Lingkungan U-Thant 55000 Kuala Lumpur, Malaysia The formation of business associations requires Tel:603-42571150,603-42573711,Fax:603-42515771 registration with the Ministry of Interior. Currently, Email:rekl@tm.net.my 27 business associations have confirmed their existence with the Internal Trade Department, 5. Mr. Tith Rithipol including 11 associations dealing with agricultural First Secretary, Permanent Mission of the promotion, two with transport and tourism, seven Kingdom of Cambodia to the United Nations with trade promotion activities, two with industries Office, WTO and other International and agro-industry, and the rest dealing with Organizations at Geneva handicraft promotion activities. 3 Chemin Taverney, Case postal 213, 1218 Aside from the above institutions, the Export Grand-Saconnex, Geneva, Switzerland Promotion Department of MoC deals with export Tel: (41-22) 788 7773, Fax: (41-22) 788 7774 trade promotion. Currently all trade fair activities, Email: rithipol6@hotmail.com domestic and overseas, are supported by the department.Allinformationrelatingtotheseexport 6. Mr.ChhiengPich, activities is available, free of charge, from: Counselor to the United State of America Ministry of Commerce Email:chhiengpich@hotmail.com Export Promotion Department No. 65-67-69, St. 136, Sangkat Phsar Kandal 7. Mr. Hem Puth Monna, Phnom Penh Counselor to Japan Tel.85512900968,Fax:8552321735 Email:monnakrasel@hotmail.com 109 110 Appendix 3 The Role of Camcontrol The following is an official account of the role of The agency, which is the national contact point Camcontrol. for Codex Alimentarius, focuses on the enforcement The Cambodia Import Export Inspection and of quality, and safety of products and services, Fraud Repression Division (Camcontrol) of MoC is through the establishment of food standards and responsible for checking and suppressing the specifications and labeling requirements. It controls circulationoffraudulentgoods.Itinspectsexported the production and importation of food products andimportedgoods,andanalyzesthequalityoffood through product sampling and quality assessment. and other consumer products. It also supervises and It promotes consumer awareness and voluntary certifies compliance with national standards of compliance of food manufacturers. In cases of quality and safety, as well as trademarks on food and defective products, it can take legal action, such as consumer products, except for medicines, medical seizing products, ordering recalls, and even filing equipmentandcosmeticproducts. criminalprosecutions. Camcontrol'sinspectionservicesforconsumer products include sample reviews, production and CONTACTADDRESS finalrandominspectionofcontainers,andon-board loading supervision. For petroleum products, its services encompass inspection and control, cargo Camcontrolmaintainsnumerousbranchesatinter- accounting,tankcalibration,productsampletesting, national ports and main border check points, and and contamination surveys. Its primary marine establishes contacts with numerous countries in the services include draft (displacement) surveys, region and the rest of the world. Its main office is supervision of loading and discharging operations, located at the following address: cargodamagesurveys,containerinspection,andclean- liness surveys of vessel holds. It also provides to the Mr.MakPichrith,Director insurance industry, self-insured companies, and Camcontrol government departments, loss-adjusting services, 50Eo, 144 Street, Phnom Penh, Kingdom which entails investigation of claims, evaluation of of Cambodia. losses,andinterpretationofinsurancepolicycoverage. Tel:(855)12-811881;Fax:(855)23-426396 111 112 Appendix 4 Ministry of Agriculture, Forestry and Fisheries Contacts Mr. Kao Thong Huor, Director, Mr. Hean Vanhan, Ph.D., Chief of Plant Department of Agricultural Legislation ProtectionandPhytosanitaryInspectionOffice Ministry of Agriculture, Forestry and Fisheries Mobile Phone: (855-12) 818216 No. 200, Preah Norodom Blvd, E-mail: vanhan@mobitel.com.kh Phnom Penh, Cambodia Fax: (855-23) 216 655 Tel: (855-12) 811 827, (855-16) 811 827 113 114 Appendix 5 Glossary of WTO Terms The following is adapted from the glossary prepared by the Articles (of the GATT). Clauses of the General U.S. Department of Agriculture, Foreign Agricultural Agreement that lay out the rules and procedures that Service, and available in full at: http://www.fas.usda.gov/ Contracting Parties will observe in their conduct of itp/wto/cancun/glossary.pdf international trade and trade policy. Each of the 38 Articles in the GATT deals with a different aspect of Accession. The process of a country becoming a trade. The GATT is now part of the legal framework member of an international agreement, such as the of the World Trade Organization. World Trade Organization (WTO). Negotiations determine the specific obligations a nonmember Balance of trade.Thedifferencebetweenthevalue country must meet before it is entitled to full WTO of goods and services that a nation exports and the membership benefits. value of the goods and services it imports. A trade surplus occurs when a country's exports exceed its Ad valorem tariff. A government tax on imports imports, resulting in a favorable trade balance. assessed as a percentage of the value of the goods Similarly, a trade deficit implies that imports total clearedthroughcustoms.Forexample,10percentad more than exports for a country, producing an valorem means the tariff is 10 percent of the value of unfavorable trade balance. the goods. Bound tariff rates, tariff binding. Tariff rates Aggregate Measure of Support (AMS).Measure resulting from GATT/WTO negotiations or of the monetary value of the extent of government accessionsthatareincorporatedaspartofacountry's support to a sector. The AMS, as defined in the scheduleofconcessions.Boundratesareenforceable UruguayRoundAgreementonAgriculture,includes under Article II of GAT T. If a WTO member raises both budgetary outlays as well as revenue transfers a tariff above the bound rate, the affected countries from consumers to producers as a result of policies have the right to retaliate against an equivalent value that distort market prices. The AMS includes actual of the offending country's exports or receive orcalculatedamountsofdirectpaymentstoproducers compensation, usually in the form of reduced tariffs (such as deficiency payments), input subsidies (on on other products they export to the offending irrigation water, for example), the estimated value of country. revenuetransferredfromconsumerstoproducersas a result of policies that distort market prices (market Boxes: pricesupports),andinterestsubsidiesoncommodity Amber box policies.A popular expression to loan programs. represent the set of provisions in the Agreement on Agriculture that describes the Agreement on Agriculture. The Agreement on domesticsupportpoliciespresumedtohavethe Agriculture is one of the 29 individual legal texts greatest potential effects on production and included under an umbrella agreement establishing trade. Examples of these policies in the United the WTO. The Agreement covers three major areas States include market price supports, marketing related to agriculture: market access, export subsidies, loans and deficiency payments, and storage and domestic support. payments. 115 Cambodia and WTO: A Guide for Business Blue box policies. A popular expression to Compensation. A WTO principle that requires a represent the set of provisions in the member country that raises a tariff above its bound Agreement on Agriculture that exempts from rate, withdraws a binding, or otherwise violates a reduction commitments those payments from tradeconcession,tolowerothertariffsormakeother production-limiting programs, such as concessions to offset the disadvantage suffered by diversion payments on set-aside land. tradingpartners.TheWTOprovidesthatanycountry that believes its trade interests have been adversely Green box policies. A popular term that affected by changes in the import regime of another describes domestic support policies that are not countrymayrequestconsultationswiththeoffending subject to reduction commitments under the country. If such government-to-government Uruguay Round Agreement on Agriculture. consultations do not yield results satisfactory to the These policies are assumed to affect trade concerned parties, the complaining country may seek minimally,andincludesuchactivitiesasresearch, the establishment of a dispute settlement panel that, extension,foodsecuritystocks,disasterpayments, under the supervision of the WTO, will review the the environment, and structural adjustment facts and recommend compensations or other programs. appropriate action. Cairns Group. An informal association of 17 Concession. A tariff reduction, tariff binding, or agricultural exporting countries, formed in 1986 at other agreement to reduce import restrictions. In Cairns, Australia. The Cairns Group was a strong negotiations, a country may offer to reduce its own coalition in the Uruguay Round of multilateral trade tariff and non-tariff trade barriers to induce other negotiations, seeking removal of trade barriers and countriestoreciprocate. substantial reductions in subsidies affecting agricultural trade. Cairns Group members are Consultations. Discussions between two WTO Argentina, Australia, Bolivia, Brazil, Canada, Chile, members for the purpose of avoiding or resolving a Colombia, Costa Rica, Guatemala, Indonesia, trade dispute. Malaysia,NewZealand,Paraguay,Philippines,South Africa,Thailand,andUruguay. Countervailing duty (CVD). An additional levy imposed on imported goods to offset subsidies Codex Alimentarius Commission.Createdin1962 providedtoproducersorexportersbythegovernment by the Food and Agriculture Organization (FAO) of the exporting country. A wide range of practices and the World Health Organization (WHO) to are recognized as constituting subsidies that may be negotiate agreements among member countries on offset. However, under WTO law, countervailing internationalstandardsandsafetypracticesforfoods. duties can only be imposed if it is determined that The Codex standards are minimum safety and theimportsarecausingorthreateningtocausematerial hygienelevelsthatcountriesvoluntarilyapplytotheir injury to a U.S. industry. Countervailing duties are exports and imports of commodities for human permitted under Article VI of the General Agreement consumption.Thestandardsarepublishedinalisting on Tariffs and Trade (GATT) as long as they are called the Codex Alimentarius. Approximately 130 in accordance with the WTO Agreement on countries are members. implementation of that article. Common Agricultural Policy (CAP). A set of Country schedules. The official schedule of regulations by which members of the European subsidy commitments and tariff bindings as agreed Union(EU)seektomergetheirindividualagricultural to under the WTO for member countries. programs into a unified effort to promote regional agricultural development, fair and rising standards Decoupled.Paymentstofarmersthatarenotlinked of living for the farm population, stable agricultural to current production decisions. When payments are markets, increased agricultural productivity, and decoupled,farmersmakeproductiondecisionsbased methods of dealing with food supply security. on expected market returns. 116 Appendix 5 - Glossary of WTO Terms De minimis provision. The total AMS includes a developingcountries.OfficiallyknownastheUnited specific commodity support only if it equals more NationsFoodandAgricultureOrganization. than 5 percent of its value of production, and noncommodity-specific support only if it exceeds 5 GATT (General Agreement on Tariffs and percent of the value of total agricultural output. The Trade). An agreement originally negotiated in de minimis rule excludes support from the AMS if it Geneva, Switzerland, in 1947 among 23 countries, does not exceed the 5-percent threshold. including the United States, to increase international trade by reducing tariffs and other trade barriers. Dispute Settlement Body (DSB). The General Council of the WTO, composed of representatives Generalized System of Preferences (GSP). A of all member countries, convenes as the Dispute policy that permits zero or low-duty entry of certain Settlement Body to administer rules and procedures imports from designated developing countries. agreed to in various agreements. The DSB has authority to establish panels, adopt panel and Impairment. The partial or total loss of a benefit appellate body reports, maintain surveillance of that was negotiated between WTO contracting implementation of rulings and recommendations, parties, due to an action, policy, or lack of action by and authorize suspension of concessions or other one of the parties. Impairment of WTO rights and obligations under the various agreements. obligations is subject to formal action under WTO dispute settlement procedures. See also bound rates. Dumping. Technically, the sale of products on the worldmarketbelowthecostofproductiontodispose Import barriers. Quotas, tariffs, and embargoes of surpluses or gain access to a market. Dumping is used by a country to restrict the quantity or value of generally recognized as an unfair trade practice a good that may enter that country. because it can disrupt markets and injure producers of competitive products in an importing country. Importquota. The maximum quantity or value of a commodity allowed to enter a country during a Export subsidies. Special incentives, such as cash specified time period. A quota may apply to amounts payments, extended by governments to encourage of a commodity from specific countries. increased foreign sales; often used when a nation's domestic price for a good is artificially raised above International trade barriers. Regulations imposed world market prices. by governments to restrict imports from, and exports to, other countries. Tariffs, embargoes, Fast-track negotiating authority. US Presidential import quotas, and unnecessary sanitary restrictions authority granted by the Congress to negotiate trade are examples of such barriers. agreementswiththeunderstandingthatthenegotiated agreement will go before Congress for a vote Market access. The extent to which a country without possibility of amendment and within a permits imports. A variety of tariff and non-tariff specifiedtimeperiod.AlsoknownasTradePromotion tradebarrierscanbeusedtolimittheentryofforeign Authority, this negotiating authority was most products. recently passed by Congress in August 2002. Most Favored Nation (MFN). Acoreprincipleof Food and Agriculture Organization (FAO).An the WTO, referred to in the US as Normal Trade agency of the United Nations concerned with the Relations(NTR). distribution and production of food and agricultural products around the world. Founded in Non-tariff trade barriers.Government measures 1945, FAO is responsible for collecting, analyzing, other than tariffs that restrict trade flows. Examples and disseminating country data on food, agriculture, ofnon-tariffbarriersincludequantitativerestrictions, and rural affairs. The agency also offers technical import licensing, variable levies, import quotas, and assistance and operates training projects in many technicalbarrierstotrade. 117 Cambodia and WTO: A Guide for Business Notification process. The process by which Special and differential treatment. The principle member countries report to the WTO information allowingdevelopingcountrieslongerimplementation on commitments, changes in policies, and other periods for new WTO disciplines, softer terms or relatedmattersasrequiredbythevariousagreements. lesser reduction commitments, in the case of agriculture, than developed countries. Organization for Economic Cooperation and Development (OECD). An organization State trading enterprises (STEs). Government- established in December 1960 to study and discuss controlled trading agencies that receive and market tradeandrelatedmatters.MembersincludetheUnited domestic products in domestic and international States, Canada, 15 member states of the European markets. STEs also encompass the practice of Union,Norway,Iceland,Switzerland,Poland,Hun- conducting trade exclusively through a government gary,CzechRepublic,Australia,NewZealand,Mexico, agency. Japan, Korea, Slovak Republic, and Turkey. Subsidy. A direct or indirect benefit granted by a Producersubsidyequivalent(PSE). Aneconomic government for the production or distribution concept used to estimate the effect of government (including export) of a good. policy by measuring the amount of the cash subsidy or tax needed to hold farmers? incomes at current Tariff.A tax imposed on imports by a government. levels if all government agricultural programs were A tariff may be either a fixed percentage of value (ad removed. PSEs and consumer subsidy equivalents valorem tariff) or, often for agricultural products, a (CSEs) are used to compare different policy tools fixed charge per unit of product imported (specific and their effects on farmer revenue and consumer tariff). costs across countries. Tariff preference. Tariff treatment accorded to a Retaliation.Anactiontakenbyonecountryagainst country that is more favorable than that given to another for imposing a tariff or other trade barrier. countries outside the preferential arrangement. Forms of retaliation include imposing a higher tariff, import restrictions, or withdrawal of Tariffication.The process of converting non-tariff previously agreed upon trade concessions. WTO trade barriers to bound tariffs. This was done under permits retaliation normally only after a dispute the Uruguay Round Agreement on Agriculture in settlement panel has ruled against specific trade order to improve the transparency of existing measures. agriculturaltradebarriersandfacilitatetheirproposed reduction. Safeguards.Temporary measures implemented in order to protect an industry while it adjusts to Tariff(-rate) quota (TRQ). Applicationofahigher increased competition by foreign suppliers. tariffratetoimportedgoodsafteracertainquantitative Safeguards can include tariffs or quantitative limit (quota) has been reached. A lower tariff rate restrictions. applies to any imports below the quota amount. Sanitary and Phytosanitary (SPS) Measures. Technical Assistance.Developing countries and Technical barriers designed for the protection of particularlytheleast-developedcountriesneedfinancial, human health or the control of animal and plant human, and institutional assistance in order to be pests and diseases. Under the Uruguay Round able to implement several WTO agreements. Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures, WTO member Technical Barriers to Trade (TBT). Refers to countries agreed to base any SPS measures on an regulations, standards (including packaging, assessment of risks posed by the import in question marking, and labeling requirements), testing and and to use scientific methods in assessing the risk. certificationprocedures,andothernon-tariffbarriers 118 Appendix 5 - Glossary of WTO Terms thatcancreateobstaclestotrade.UndertheUruguay Trade deficit.See Balance of trade . Round Agreement on Technical Barriers to Trade (TBT Agreement), WTO members agreed to Transparency. The degree to which trade policies disciplines on the use of these measures as they and practices, and the process by which they are apply to both industrial and agricultural products. established, are published in timely fashion for use by foreign suppliers, and are predictable. The Three Sisters. The WTO's Sanitary and Phytosanitary Agreement identifies three standard- Unfairtradepractices.Actionsbyagovernmentor setting organizations: the Food and Agriculture firms that result in competitive advantages in Organization-World Health Organization Codex international trade. Such actions include export Alimentarius for food safety; the International subsidies, dumping, boycotts, or discriminatory Office for Epizootics (OIE) for animal health; and shipping arrangements. theInternationalPlantProtectionConvention(IPPC) for plant health. WTO Panel. A group composed of neutral representatives that may be established under the Trade barriers.Regulations used by governments dispute settlement provisions of the WTO. The to restrict imports from, and exports to, other WTO panel reviews the facts of a dispute, renders countries. Examples include tariffs, nontariff findings of WTO law and recommends action. barriers, embargoes, and import quotas. 119