CAMBODIA 91243 SERVICES TRAD A TRADE DEVELOPMENT REPORT CAMBODIA SERVICES TRADE o Cambodia Services Trade Performance and Regulator y Framework Assessment a THE WORLD BANK OFFICE PHNOM PENH No. 113 Norodom Boulevard Phnom Penh Cambodia Tel: (855 23) 861 300 Fax: (855 23) 861 301 Printed in July 2014 Cambodia Services Trade: Performance and Regulatory Framework Assessment is a product of staff of the World Bank. The findings, interpretation and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank, the governments and donors they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Cover photographs are Copyright World Bank and IFC. A Trade Development Report Cambodia Services Trade: Performance and Regulatory Framework Assessment Table of Contents Preface.......................................................................................................................................................IV Acknowledgments.....................................................................................................................................V Acronyms and Abbreviations..................................................................................................................VI Executive Summary................................................................................................................................... 1 Introduction ................................................................................................................................................4 Growth and Transformation ................................................................................................................................................... 4 Challenges to Export Expansion ...........................................................................................................................................4 Trade in Services and Its Main Determinants.....................................................................................................................5 Structure of Report ......................................................................................................................................................................6 1. Openness, Growth, and the Composition of Services Exports .....................................................7 The Rapid Growth of Services ..........................................................................................................................................9 Factor Analysis .................................................................................................................................................................... 10 2. Policies, Institutional Setting, and Rule-Making Capacity............................................................14 Commitments to Services and the Level of Restrictiveness ................................................................................... 14 International commitments ............................................................................................................................................ 14 Policies and regulations ................................................................................................................................................... 15 Institutional Context and Regulatory Procedures......................................................................................................... 19 Institutional Framework and Rule-Making Process ..................................................................................................... 21 Transparency......................................................................................................................................................................... 21 Regulatory process............................................................................................................................................................ 22 Stakeholder consultations .............................................................................................................................................. 22 Inter-agency coordination................................................................................................................................................. 23 Regulatory efficiency.......................................................................................................................................................... 24 3. Policies and the Regulatory Framework for Services................................................................... 25 Horizontal Regulatory Framework ..................................................................................................................................... 25 Foreign investment ............................................................................................................................................................. 25 Movement of persons and employment .................................................................................................................... 27 Other horizontal regulations........................................................................................................................................... 27 Sectoral Regulatory Frameworks ....................................................................................................................................... 28 Telecommunications services ....................................................................................................................................... 28 Professional services ........................................................................................................................................................ 33 Tourism ...................................................................................................................................................................................34 4. Conclusion: Main findings and policy implications ....................................................................... 36 Investing in Human Capital ....................................................................................................................................................36 Enhancing Infrastructure ........................................................................................................................................................ 37 Improving Governance and Regulation.............................................................................................................................. 37 Adopting Horizontal Measures ............................................................................................................................................. 38 References ........................................................................................................................................................................................40 Appendix A: The Services Trade Restrictiveness Index...................................................................................................43 Appendix B: Definitions of Commercial services Sectors...............................................................................................45 Cambodia Services Trade II Performance and Regulator y Framework Assessment List of Figures Figure 1.1 Exports of services from Cambodia have soared since 1998, outpacing the region as a whole......................................................................................................................................................................... 7 Figure 1.2 Trade in services represents a much higher share of GDP in Cambodia than in the region as a whole..................................................................................................................................................... 7 Figure 1.3 Trade in services represents a larger than average share of GDP in Cambodia.............................. 7 Figure 1.4 Services represent a below-average share of GDP in Cambodia.......................................................... 8 Figure 1.5 Led by tourism, Cambodia’s services exports surged...............................................................................9 Figure 1.6 Services exports are growing fast in Cambodia.......................................................................................... 9 Figure 2.1 Governance indicators remain low in Cambodia, with little improvement since 1996..............14 Figure 2.2 Cambodia has made major commitments on services in trade agreements.................................15 Figure 2.3 Trade in services in Cambodia is open and relatively unrestricted....................................................16 Figure 2.4 In almost every sector, Cambodia’s services trade restrictiveness index is lower than its neighbors’...................................................................................................................................................................17 Figure 2.5 Cambodia’s logistics services restrictiveness index is above the average for Asia ....................17 Figure 2.6 The main source of restrictiveness in Cambodia is customs-related measures..........................18 Figure 2.7 Evaluation of public-private dialogue in Cambodia...................................................................................23 Figure 3.1 Tourism attracts the majority of FDI projects............................................................................................26 Figure 3.2 The number of mobile phone subscribers in Cambodia has soared, but fixed line and Internet connectivity remains low.................................................................................................................. 29 Figure 3.3 Internet and mobile phone subscriptions in Cambodia were the lowest in the region in 2010....................................................................................................................................................................... 30 Figure 3.4 Cambodia’s telecommunication sector is formally less restrictive than average in East Asia Restrictiveness Index, but regulatory problems limit the entrance of foreign players..............31 Figure 3.5 Access to broadband technology accelerates economic growth, particularly in low-income countries...........................................................................................................................................31 List of Tables Table 1.1 Cambodia’s Knowledge Economy Indicators..............................................................................................10 Table 2.1 Indicators of institutions and governance in selected countries in East Asia and Pacific [2010].......................................................................................................................................................... 20 Table 3.1 Ease of investing indicators in selected countries in East Asia and Pacific [2010].....................27 Table 3.2 Key policies and programs for building the broadband ecosystem....................................................32 Table 3.3 Tourism in Cambodia, 2000-2011................................................................................................................... 35 Table 4.1 Skills up-grading in Cambodia.......................................................................................................................... 36 List of Boxes Box 1.1 Addressing Skills Mismatch: The case of IT services and IT-enabled services (ITES) industries............................................................................................................................................................................12 Box 2.1 Good regulatory principles: Excerpts from the APEC–OECD Integrated Checklist on Regulatory Reform............................................................................................................................................... 20 Box 3.1 Exporting high-skilled niche services: Cambodia’s nascent computer animation industry.....32 Cambodia Services Trade Performance and Regulator y Framework Assessment III Preface In today’s world, high-quality and low-cost services can enhance trade and export competitiveness, integrate countries into the global economy, and help diversify exports. For many developing countries, the scope of the domestic services industry is limited to traditional services such as tourism or transport, but more successful developing countries have managed to demonstrate revealed comparative advantages in areas such as infor- mation technology, communications, and financial services. Investing in the service economy is rewarding on two fronts: firstly, services are an important determinant of the competitiveness of downstream export sec- tors and secondly, services can rapidly become an export industry in their own right. Despite the importance of the services sector, however, there has not been any analysis or information on the baseline contribution of services trade to Cambodia, despite the country’s impressive economic growth over the past 20 years and its increasingly diversified economy. To that end, this report details the Royal Govern- ment of Cambodia’s recent assessment of its regulatory framework for services trade—undertaken with the help of the World Bank—to evaluate whether that framework effectively promotes the most efficient services market possible. The Bank has piloted a new toolkit in this process, which offers a practical methodology to assess the impact of services regulations, and offers guidance on how to ensure that services regulation cor- rectly addresses market failures while achieving public policy goals. The project was implemented to map the various regulations affecting trade and investment in Cambodian services, provide a quantitative assessment of the impact of those regulations, and identify options for improving regulations and institutional set-ups. A vibrant export sector requires easy access to efficient services, which comprise a significant share of the value added by each export industry whether it be in manufacturing or agriculture. Telecommunications, as well as business services and transport, are vital elements to the export success story of least developed countries, providing an essential backbone to their economic performance. Research in countries such as Cambodia show that the adoption of services regulations is not sufficient for economic success; other impor- tant challenges to the business environment must be addressed in order for the services sector to reach its export potential. In developing countries, nurturing a nascent services industry or prioritizing the diversifica- tion of an existing services sector toward modern and more sophisticated services can contribute to economic growth and deeper regional integration. Domestic impediments that hold back the development of a modern and sophisticated services sector often come down to regulatory obstacles and poor governance. Even countries that have adopted significant com- mitments to liberalize services barriers—e.g. as a result of accession to the World Trade Organization—find that myriad other complementary factors must accompany liberalization - contestable markets, strong regu- latory governance, enforcement capacity - to help boost the quality and cut the costs of increased services exports. The complex nature of regulatory reforms makes it difficult to create these necessary conditions for successful services trade reform. In addition, there are political economic considerations due to the many affected stakeholders in the services sector and the fact that services are related to social policies, including health, education, and social protections like pensions. More information on the regulatory assessment for services trade and investment methodology—RASTI for short—including links to download the toolkit used in Cambodia is available at http://www.worldbank.org/ trade/rasti. Julian Latimer Clarke Senior Economist, Trade The World Bank July, 2014 Cambodia Services Trade IV Performance and Regulator y Framework Assessment Acknowledgments This report is an Economic Sector Work of the EASPR Department. A team led by Julian Latimer Clarke, composed of Martín Molinuevo (PRMTR), Sebastián Sáez (PRMTR), and Saurabh Mishra (consultant), prepared the report. The report was prepared under the overall guidance of Sudhir Shetty, Sector Director of EASPR; and Mathew A. Verghis, Sector Manager for the World Bank Cambodia. The report benefited from discussions with government officials from the Ministry of Commerce, the Ministry of Economy and Finance, and the Supreme National Economic Council. The report also benefited from the valuable comments of Mona Haddad, Enrique Aldaz-Carroll, and Kirida Bhaopichitr. The authors would like to acknowledge editorial support and review from Brendan O’Driscoll, Barbara Karni, Amir Fouad, Peter Milne and Lyna Chea. Lyden Kong provided useful logistic and administrative support. Thanks to IFC for providing cover photograph. Funding from the donors of the Multi-donor Trust Fund for Trade Development Support Program (TDSP), comprising the Danish International Development Agency (DANIDA), the European Union and United Nations Industrial Development Organization (UNIDO), is gratefully acknowledged. Cambodia Services Trade Performance and Regulator y Framework Assessment V Acronyms and Abbreviations APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations CDC Council for the Development of Cambodia ECOSOCC Economic, Social, and Cultural Council FDI Foreign Direct Investment FTA Free Trade Agreement GATS General Agreement on Trade in Services GDP Gross Domestic Product G-PSF Government–Private Sector Forum ICT Information and Communications Technology IFC International Finance Corporation IMF International Monetary Fund IT Information Technology ITES Information Technology Enabled Services KEI Knowledge Economy Index KICPAA Kampuchea Institute of Certified Public Accountants and Auditors LDC Least Developed Country MPTC Ministry of Posts and Telecommunications MRA Mutual Recognition Agreements MoT Ministry of Tourism NAC National Accounting Council OECD Organization for Economic Co-operation and Development RGC Royal Government of Cambodia USD U.S. Dollar WB World Bank WTO World Trade Organization Cambodia Services Trade VI Performance and Regulator y Framework Assessment Executive Summary As a result of a determined regulatory reform process and an economic modernization process over the past two decades, Cambodia has experienced extraordinary economic growth. In 2004, Cambodia became the first low-income country to join the World Trade Organization (WTO). Since then, Cambodia has grown to become one of East Asia’s most open economies, especially in the services sector. Cambodia’s impressive economic growth owes much of its driving force to the boom in services trade. Services exports grew more than 20 percent a year for most of the past decade led by a rapid expansion in tourism. Foreign direct investment (FDI)—particularly in tourism, construction, infrastructure, agro-processing, and telecommunications—also supported the expansion of services trade, not only by attracting foreign capital and expanding employment into Cambodia, but also by improving domestic technology and enhancing domestic skills. Cambodia is quickly becoming a sophisticated economy that needs to move beyond the pillars of textiles and tourism exports by diversifying into the export of modern services. Cambodian firms are already tentatively exporting some niche services such as computer-based animation. Modern services exports to other East Asian countries, including information technology (IT)-related services, are likely to play a more important role in Cambodia as a source of employment, revenue, and investment. In the regional context, Cambodia stands to benefit from its chairmanship of the Association of Southeast Asian Nations (ASEAN), by showcasing its economic reform and modernization process, and increasing the potential to attract investments from services firms interested in serving the region as whole. Cambodia should act quickly to address potential competition from other least-developed (LDC) and developing countries across the region that are also expanding their services industries. The recommendations of this report focus on the following key areas: i) adoption of international best regulatory practices, particularly in telecommunication reform; ii) improved mechanisms for matching skills development with labor demand; iii) implementation of ASEAN 2015 goals for liberalization of skilled labor movement; and iv) improvement of access to regulation in trade in services and rule- making procedures. Each of these areas is briefly explained below. Cambodia’s largely young population is a potentially critical asset—but it needs to be educated and trained in order to contribute to the expansion of services industries. A recent World Bank report on skills provides a set of concrete recommendations on access to information in the skills market, expanded financing for early childhood development, strengthening institutional development, and promoting incentives for skills providers, including higher education institutions. In addition, Cambodia’s government should coordinate with education institutions and relevant services companies, such as those in the Information and Communications Technology (ICT) industries to promote a market-ready employment base for the services sector. Cambodia may also learn from the different models followed by countries such as Canada, Egypt, India, the Philippines, and Singapore in establishing partnerships between the public and private sectors in order to identify areas of skills shortage and to develop industry-specific skills, in particular for the services sector. Examples of these programs include: Cambodia Services Trade Performance and Regulator y Framework Assessment 1  improvement and public dissemination of statistical data on labor markets to be used by policy- makers and private stakeholders;  establishment of sector-specific training bodies, linked to industry associations and other organizations;  establishment of seat allocation targets for public universities on specific areas of knowledge, based on estimated market demand; and  publication of labor market forecast reports based on census data and industry trends to better inform policymakers, educational institutions and private companies on the allocation of educational resources. In addition, Cambodia’s open policy for the employment of foreigners, particularly high-skilled foreigners, should be maintained in order to provide an attractive investment environment and facilitate the transfer of knowledge. The expansion of services will require better infrastructure, in particular broadband telecommunications. The development of Cambodia’s telecom sector has been mixed. Mobile telephony has boomed, greatly increasing connectivity across the country. Broadband communication remains accessible only in selected locations, however, and its cost is prohibitive for the overwhelming majority of the population, leading to the lowest broadband connectivity in the region. The deficient institutional and regulatory framework for the telecom sector remains the main hurdle to the attraction of FDI into the telecom sector. Current efforts to the adoption of a telecoms law should thus be intensified. Empirical evidence seems to suggest that broadband is a major contributor to economic growth. Specific and carefully designed policies targeted to the development of the telecom sector are required. In addition to the establishment of an adequate regulatory environment for the sector, a number of countries have designed broadband strategies to foster development. Alternatives range from opening the sector to wider competition to streamlining regulation (including the elimination of licensing requirements for certain broadband services, as implemented in Thailand) to the establishment of public-private partnerships in the development of backbone infrastructure, as promoted by Kenya. While Cambodia’s services trade has reached a significant level of liberalization that allows private sector provision of services as well as foreign ownership on a non-discriminatory basis in a wide range of sectors, governance remains weak. Lack of transparency and predictability in the implementation of regulations is impeding full liberalization of many services sectors, even though the legal framework formally adheres to Cambodia’s international commitments. Missing information relating to regulatory requirements, inconsistent application and interpretation of regulations across agencies, frequent changes of administrative practices and discretionary applications of rules all introduce limitations into an otherwise open regime. In addition, the regulatory infrastructure, lacking human resource capacity and other resources, remains insufficient. Cambodia Services Trade 2 Performance and Regulator y Framework Assessment In the transport sector, for example, informal payments are frequent, raising the cost of moving goods around the country. In the tourism sector, a weak regulatory environment makes it difficult for Cambodia to expand into high-end tourism services. In the professional services sector, regulatory restrictions on legal services are limiting investment and may even be inconsistent with Cambodia’s WTO commitments. In contrast, the adoption of international standards and the establishment of effective regulatory bodies in accounting have attracted the top international firms and are greatly improving domestic skills. Adoption of government-wide regulatory guidelines aligned with principles of good regulation, including transparency, public consultations, inter-agency coordination, and regulatory efficiency, together with stronger regulatory bodies, would improve the business climate. Ensuring that all laws and regulations on trade and investment are publicly available at a single website (known as a trade information portal) will also help attract investment and increase confidence. There are a number of immediate initiatives that Cambodia may take, starting with pilot programs in key ministries, to contribute to the development of an enabling regulatory framework for the services sector. These measures should only be seen as building blocks for broader policies on economic openness and good governance. In addition to sector-specific initiatives, the main horizontal measures that should immediately be considered include:  ensure that the official legal gazette or journal reflects the publications of all laws and regulations affecting trade and investment in services;  establish ministry-specific annual regulatory programs, with plans that notify stakeholders of forthcoming regulations, outlining the identified problems to the tackled through regulation, and the desired regulatory objectives to be pursued (this could be included in transparency mechanisms envisaged for ASEAN 2015); and  adopt regulatory policy guidelines that set out the procedures to be followed in the law- and regulation- making process, and that address the current lack of regulatory information affecting the industry. Finally, to assist policymakers in evaluating the cost and benefits of regulations in a consistent manner, the report strongly recommends performing regulatory assessments on a sectoral basis, to identify measures governing trade in services, as well as those affecting performance and market structure. By streamlining the regulatory framework in services, these assessments may serve to improve the efficiency of regulation and provide a framework for introducing new regulations concerning services. Cambodia Services Trade Performance and Regulator y Framework Assessment 3 Introduction This report analyzes the growth potential for services in Cambodia. It identifies the main obstacles to growth and provides a quantitative and qualitative assessment of historical trade performance and competitiveness in services trade. It shows that Cambodia’s openness, growth, and comparative advantage give it the potential to expand its services sector and exports beyond tourism. Cambodia’s decisive policies on openness and regulatory reform are also conducive to sustaining the attraction of foreign investment. They also allow for diversifying the services exports offered, contributing to the development of high value services exports. However, in order to take full advantage of services as both an input to other economic activities and a potential source of trade diversification, Cambodia should expand its services export market. In order to do this, it needs to improve the performance of key services determinants such as electronic infrastructure, human capital, and regulatory framework. Cambodia’s largely young population is a key asset that needs to be educated and trained in order to become a contributing factor for the expansion of services industries, but the regulatory framework needs to be further enhanced to support that process. Lack of transparency, shortage of technical skills for the regulators, and weak and discretionary enforcement of regulations are pervasive and are already negatively impacting on the growth of key services industries. Growth and Transformation Following determined regulatory reform and an economic modernization policy, Cambodia’s economic conditions and performance have experienced an extraordinary transformation in the last two decades. Cambodia has almost tripled its Gross Domestic Product (GDP) in 15 years—increasing per capita GDP by even more. This reform policy adopted in the early 1990s led to accession to the WTO in 2004 and transformed the country into one of East Asia’s most open economies, especially in the services sector. Cambodia’s impressive economic growth owes much to the boom of services trade. Cambodian services exports grew at an average annual rate of more than 20 percent between 2000 and 2010, led mainly by the expansion of tourism (textiles exports have been the other pillar of the economy). Foreign direct investment—particularly in tourism, construction and infrastructure, agro-processing, and telecommunications—has supported the process, not only by attracting foreign capital and expanding employment, but also by improving technology and enhancing domestic skills. Cambodia became the first LDC to join the WTO and has become an active and vocal player in the regional integration process. Its assumption of the presidency of the ASEAN in 2012 facilitated the discussion of a wide variety of topics, including completion of the formation of the ASEAN Economic Community by 2015. This international economic context provides an opportunity for Cambodia to use this regional platform to showcase the country’s economic reform and modernization and to secure its standing as an attractive regional investment destination, in particular for the services industry. Cambodia’s strong performance in recent years speaks to that investment goal. Challenges to Export Expansion Like most developing countries in East Asia, Cambodia still faces important challenges. It needs to expand and diversify its exports and respond to growing competition for foreign direct investment in the region, especially efficiency-seeking investment in services industries. In the services sector, three categories Cambodia Services Trade 4 Performance and Regulator y Framework Assessment of providers will be attracted to the Cambodian market:  investors already serving the domestic market in backbone services, such as finance and telecommunications;  investors attracted by Cambodia’s natural and cultural endowments, who have already invested or are planning to invest in the tourism, restaurant, or related industries; and  services operators who may be interested in taking advantage of Cambodia’s geographical location to provide services regionally. Cambodia should diversify and expand its services offered beyond tourism, by attracting efficiency- seeking investments aimed at providing regional IT-enabled services. In this area Cambodia must be able to face the competition of larger and more developed countries, such as Malaysia, Singapore and Thailand. Cambodia’s economy offers a good foundation for services, but important work remains to be done with regard to the country’s skills base, infrastructure, and governance framework. Cambodia’s young population is a valuable asset, but requires investment both in general education, as well as in training programs developed specifically for the services industry. Infrastructure for telecommunications also needs to be improved in order to support the provision of services across borders. Further progress is needed on the institutional and regulatory framework to accompany the modernization and sophistication experienced by Cambodia’s economy, as well as to attract services providers interested in serving Cambodia and broader sub-region including Thailand, Lao PDR, Myanmar and Vietnam. Cambodia’s institutional capacity has greatly increased in recent years, but, while the regulatory framework is improving, it remains below the standard of the transparent and sound framework needed to attract foreign investment, and to promote the expansion and diversification of high-value services. Trade in Services and Its Main Determinants1 The services sector—including telecommunications, banking, IT and BPO—is increasingly recognized as part and parcel of any trade strategy, both as a source of export diversification in its own right, and as an input to manufacturing and other services production. Over the last two decades, trade in services has expanded rapidly and now accounts for over a fifth of global trade flows. The participation of developing countries in world services exports has increased from 11 percent in 1990 to more than 21 percent in recent years. It is helpful to begin by clarifying certain aspects of trade in services. Since many services transactions require face-to-face contact between the consumer and provider (despite the increased scope for electronic delivery), it is now standard to define trade in services more widely than trade in goods. Trade in services encompasses four modes of supply: mode 1, cross-border trade in services, is analogous to trade in goods and involves shipping services such as software from one country to another; mode 2, consumption abroad, refers to consumers (e.g. tourists or students) traveling across borders; mode 3, commercial presence, occurs through the establishment of a commercial presence by the producer (e.g. the subsidiary or branch of a bank) in the country of the consumer; and mode 4, movement of natural persons, which takes place when the producer (e.g. a mining engineer) travels across borders. One important implication of this wide definition of trade in services is that it incorporates the international movement of factors through FDI and temporary labor mobility.2 1 Goswami, Mattoo, and Saez (2012) and Van der Marel (2012). 2 Appendix B offers a set of definitions of “services” as understood in this report. Cambodia Services Trade Performance and Regulator y Framework Assessment 5 The modes of supply can be either substitutes or complements depending on the services. For example, book-keeping services can be provided remotely through cross-border trade (mode​1) or through the temporary presence of a foreigner to deliver the service (mode 4). In that case, both modes act as substitute and compete with one another. Instead, in the design of software suited to a foreign firm’s needs, the temporary presence of an individual provider may be necessary for the later remote delivery of the services, so that the two modes act as complements. The relationship between modes has implications for the analysis of the impact of regulations on the costs and quality of the services. If modes are perfect substitutes, the liberalization of one of them is enough to fully reap the gains from liberalization. But when modes are imperfect substitutes or complements, the freedom to use a combination of modes is necessary in order to effectively provide the services. This report is an attempt to assess the determinants of Cambodia’s participation in services exports. It examines the role of the following factors:  The ’fundamentals’, which are given in the short run but can be influenced by policy in the long run. These include a country’s factor endowments relevant to services trade, namely:  human capital – including skills and entrepreneurial ability;  infrastructure, particularly telecommunications networks that facilitate the delivery of services; and institutional quality, especially the regulatory environment for services.  Policies affecting trade, investment and labor mobility in services. These include:  policies affecting cross-border trade (e.g. in transport and financial services);  consumption abroad (e.g. in health and education services);  foreign investment; and  the movement of individual service providers. Structure of Report This report is organized as follows. The first section provides a quantitative outcome analysis of openness and growth, diversification, productivity, quality, and the determinants of services trade. It examines the main factors affecting services exports: skills, electronic infrastructure, governance, and the business climate. The second section examines the institutional setting and regulatory framework. It describes the main policies toward services trade, as reflected in Cambodia’s international obligations, as well as the institutional context relevant to the sector. The third section assesses Cambodia’s institutional setting and rule-making capacity. It describes the main laws and regulations governing services trade and investment generally, as well as within three specific services sectors (telecommunications, professional services, and tourism). The final section summarizes the report’s main findings. It makes some suggestions on policies and measures that Cambodia could take to continue to attract investment in the services industry, and to develop niches of high value-added services exports. Cambodia Services Trade 6 Performance and Regulator y Framework Assessment Openness, Growth, and the Composition of Services Exports Unlike most developing countries, Cambodia is a Cambodia well above the regional average in terms net exporter of services, the growth of which has of incidence of services trade in the economy, as skyrocketed in the past two decades (Figure 1.1). well as compared to countries at a similar stage of The share of trade in services in GDP in Cambodia economic development, even though Cambodia’s rose from less than 10 percent in 1993 to more than services exports were well below similar countries 25 percent in 2010 (Figure 1.2). This has positioned as recently as 20 years ago (Figures 1.2 and 1.3). Figure 1.1 Exports of services from Cambodia have Figure 1.2 Trade in services represents a much soared since 1998, outpacing the region higher share of GDP in Cambodia than in as a whole the region as a whole Source: World Bank 2012a. Figure 1.3 Trade in services represents a larger than average share of GDP in Cambodia a. 1996 b. 2010 Source: World Bank 2012a. Cambodia Services Trade Performance and Regulator y Framework Assessment 7 Openness, Grow th, and the Composition of Ser vices Expor ts Unlike services exports, the significance of services that Cambodia’s domestic market for services as a whole to GDP remains low in Cambodia, is still in its infancy, and there is great scope especially when compared to countries at a similar for further development. Furthermore, the contrast level of development. Services as a whole were between high services exports and low services lower than average for a country at Cambodia’s in relation to GDP also highlights the fact that stage of development in 2010, whereas services the country’s main services industry, tourism, is exports were higher than average. This suggests inherently export-oriented. Figure 1.4 Services represent a below-average share of GDP in Cambodia a. 1996 b. 2010 Source: World Bank 2012. Cambodia Services Trade 8 Performance and Regulator y Framework Assessment Openness, Grow th, and the Composition of Ser vices Expor ts The Rapid Growth of Services Services exports have been growing more may be an indication of certain problems that rapidly in Cambodia than in peer economies, have emerged in this sector. The performance averaging 20 percent a year between 1995 and and regulation of telecommunication services 2010. This surge was led by tourism, exports of is examined in more detail below. which rose by a factor of 23 percent over this period (Figure 1.5, panel a). Although exports of Figure 1.6b shows the composition of services other subsectors also rose, their share in total exports in 2010. Transport and travel stand out services exports declined (Figure 1.5, panel b). as Cambodia’s prevailing services industries, accounting for 85 percent of commercial services Tourism accounts for more than 70 percent of all exports. Communications, construction, and other services exports in Cambodia, growing in the past business services together add up to 10 7 years by about 18 percent a year on average. percent of Cambodia’s services exports. Despite Other services exports, for example construction the high rates of growth of new services activities, and other business services, have been growing diversification into new modern activities, such by 37 and 17 percent respectively, for the past as business services, remains the main challenge 7 years. In contrast, telecommunications servic- of Cambodia’s services sector. es have been growing by only 3 percent, which Figure 1.5 Led by tourism, Cambodia’s services exports surged a Service exports, 1995–2010 b Composition of service exports, 1995–2010 Source: Authors’ calculation, based on data from World Bank 2012a. Figure 1.6 Services exports are growing Tourism is the dominant services export in Cambodia fast in Cambodia despite high growth rate of other services a Service Exports Growth Rate: 2004-2011 b Composition of Services Exports, 2010 50 45 40 Travel, 1260.03, Communications, 35 72% 96.06, 30 5% 25 20 15 10 5 0 Construction, s e es es ies s on tru s l l t na e ice nc ice n or av vic vic Co atio cti ine yalt 10.458, 1% sp tio an sura rv rv Tr er er an se ea se ic Ro Construction, ls rs un In ns Tr cr ss al Rest, Rest, cia he Re m 10.458, 1% t To Ot m 79.421, 5% 79.421, 5% us Co Fin rb he Ot Source: UNCTADStat, http://unctadstat.unctad.org 2012. Cambodia Services Trade Performance and Regulator y Framework Assessment 9 Openness, Grow th, and the Composition of Ser vices Expor ts Factor Analysis What factors affect the performance of services knowledge-based services; natural monopoly exports? Many service sectors, ranging from or oligopoly is a feature of ‘locational’ services; business services to banking to telecommunica- and both consumers and suppliers must make tions, are significantly more skill intensive than relationship-specific investments in customized most goods production (Van der Marel, 2012). services. A consequence is that market failure Endowments of human capital can, therefore, be caused by asymmetric information is more a critical determinant of output and growth. common in markets for services than in markets for goods. The market itself can provide some The empirical literature also recognizes the solutions (in the form of “reputation building”, for important role institutions play in economic example). But regulatory institutions that provide development. Certain institutions may play a consumers with information about the quality particularly significant role in the development of of a service (through certification and licensing services sectors, because informational problems mechanisms, for example) are critical (Goswami, are more acute in many inter-mediation and Mattoo, and Saez 2012). Table 1.1. Cambodia’s Knowledge Economy Indicators (scale 0 lower - 10 higher) Knowledge Economic Economy Knowledge Index Innovation Education ICT Regime Index Most Most Most Most Most Most Country Overall 1995 Change 1995 Change 1995 Change 1995 Change 1995 Change 1995 Change Previous Recent Recent Recent Recent Recent Recent Rank Cambodia 132 -16 1.71 2.77 -1.06 1.52 2.99 -1.47 2.28 2.12 0.16 2.13 1.69 0.44 1.7 3.11 -1.41 0.74 4.18 -3.44 China 84 +7 4.37 3.99 0.38 4.57 4.17 0.4 3.79 3.46 0.33 5.99 4.07 1.92 3.93 3.68 0.25 3.79 4.77 -0.98 Indonesia 108 -3 3.11 3.68 -0.57 2.99 3.55 -0.56 3.47 4.08 -0.61 3.24 2.38 0.86 3.2 3.07 0.13 2.52 5.2 -2.68 Lao PDR 131 -2 1.75 1.92 -0.17 1.84 2.53 -0.69 1.45 0.1 1.35 1.69 1.79 -0.1 2.01 1.61 0.4 1.84 4.18 -2.34 Malaysia 48 -3 6.1 6.26 -0.16 6.25 5.96 0.29 5.67 7.16 -1.49 6.91 6.28 0.63 5.22 4.62 0.6 6.61 6.98 -0.37 Mongolia 83 +3 4.42 4.08 0.34 4.45 4.12 0.33 4.3 3.95 0.35 2.91 3.1 -0.19 5.83 4.49 1.34 4.63 4.77 -0.14 Myanmar 145 -8 0.96 2.23 -1.27 1.22 2.6 -1.38 0.17 1.12 -0.95 1.3 1.69 -0.39 1.88 1.94 -0.06 0.48 4.18 -3.7 Philippines 92 -15 3.94 5.07 -1.13 3.81 5.24 -1.43 4.32 4.57 -0.25 3.77 4.09 -0.32 4.64 6.25 -1.61 3.03 5.38 -2.35 Singapore 23 -3 8.26 8.4 -0.14 7.79 8 -0.21 9.66 9.62 0.04 9.49 9.05 0.44 5.09 5.94 -0.85 8.78 9 -0.22 Sri Lanka 101 -14 3.63 4.25 -0.62 3.49 4.04 -0.55 4.04 4.87 -0.83 3.06 3.27 -0.21 4.61 4.35 0.26 2.8 4.5 -1.7 Thailand 66 -6 5.21 5.57 -0.36 5.25 5.23 0.02 5.12 6.61 -1.49 5.95 5.66 0.29 4.23 4.14 0.09 5.55 5.89 -0.34 Vietnam 104 +9 3.4 2.94 0.46 3.6 3.04 0.56 2.8 2.64 0.16 2.75 2.34 0.41 2.99 2.28 0.71 5.05 4.5 0.55 High Income 8.6 n/a n/a 8.67 n/a n/a 8.39 8.29 0.1 9.16 8.97 0.19 8.46 n/a n/a 8.37 8.99 -0.62 Upper Middle Income 5.1 n/a n/a 5.07 n/a n/a 5.18 4.98 0.2 6.21 5.08 1.13 4.72 n/a n/a 4.28 7.24 -2.96 Middle Income 3.42 n/a n/a 3.45 n/a n/a 3.32 3.03 0.29 4.9 3.55 1.35 2.84 n/a n/a 2.62 5.41 -2.79 Low Income 1.58 n/a n/a 1.58 n/a n/a 1.61 1.93 -0.32 2.13 2.37 -0.24 1.54 n/a n/a 1.05 n/a n/a Source: World Bank 2012a. Knowledge Assessment Methodology, http://go.worldbank.org/JGAO5XE940 Note: — n.a.: not applicable. — Red: regression with respect to 1995 — Green: progress with respect to 1995 — Knowledge Economy Index, (KEI): a broad measure of the overall level of preparedness of a country or region for the knowledge economy. — Knowledge Index: composed of the simple average of the normalized scores of Education, Innovation, and ICT indexes. Cambodia Services Trade 10 Performance and Regulator y Framework Assessment Openness, Grow th, and the Composition of Ser vices Expor ts Based on the Knowledge Economy Index (KEI) of with that process, while the progress in innovation ASEAN countries, Cambodia performs poorly on is explained by increases in the number of patents several factors that matter (Table 1.1). The KEI granted, scientific journals available, and royalty is an aggregate index that represents the overall payment and receipts. However, the country’s level of development of a country or region in the performance in terms of education and ICT knowledge economy. It reflects the four pillars of declined, and other indicators such as regulatory the knowledge economy framework: quality and rule of law have not improved. an economic and institutional regime to provide The education and ICT indicators gauge progress incentives for the efficient use of existing on average years of schooling, enrollment in and new knowledge and the flourishing of secondary and tertiary education, and telephone, entrepreneurship; computer and internet access, respectively. In the case of education, although indicators have shown an educated and skilled population to create, progress in the last 15 years, the improvement is share, and use knowledge well; slower than for the comparison countries. The an efficient innovation system of firms, research resultant shortage of skills has an impact on the centers, universities, consultants, and other services industries, which tend to require more organizations to tap into the growing stock of skilled labor than manufacturing industries, global knowledge, assimilate and adapt it to especially in modern export- oriented services. Box local needs, and to create new technology; and 1.1 points to the experiences of several countries in developing programs to overcome skills ICT to facilitate the ef fective creation,  mismatches in the IT and IT-enabled services dissemination, and processing of information. (ITES). In addition, the Conclusion suggests measures that may be considered in the context The scorecards demonstrate relative performance. of Cambodia. The variables are normalized on a scale from 0 to 10 relevant to other countries in the comparison group. In the case of ICT, Cambodia’s improvements to If a country performs worse over time on a certain internet access and increases in the number of normalized variable, this may be either because computers are also slow compared to its comparators. it has actually lost ground in absolute terms or This matters, because human capital is critical improved slower than the comparison group. for all types of services exports. High-value services are performed by a specialized labor force. In 2012, Cambodia ranked 132 out of 146 countries Previous findings on services exports, including on the overall KEI index, a decline of 16 places since empirical evidence from a broad range of countries, 2000. Its economic and institutional regime confirm that, to succeed in higher-end services improved, as did the efficiency of its innovation exports, a country must be well endowed with system. The former is associated with Cambodia’s human capital. accession to the WTO and the reforms associated Cambodia Services Trade Performance and Regulator y Framework Assessment 11 Openness, Grow th, and the Composition of Ser vices Expor ts Box 1.1 Addressing Skills Mismatch: The case of IT services and IT-enabled services (ITES) industries. After access to high-bandwidth telecommunications infrastructure, the availability of employable talent is the single most important determinant for the growth of the IT services and ITES industries in the long term. When examining policies related to the talent pool, institutional mechanisms for aligning skills development with the needs and requirements of the industry is the most important factor for success. In this regard, the government of Mexico established a new organization in 2008, MexicoFIRST, as a partnership between the Asociación Mexicana de la Industria de Tecnologías de Información (AMITI) and the Asociación Nacional de Instituciones de Educación en Tecnologías de la Información (ANIEI). ProSoft, a government agency tasked with promoting the IT services and ITES industries, facilitated and supported the creation of this entity. MexicoFIRST closely interfaces with the industry on the one hand, and with Mexican universities on the other, to facilitate training programs at the universities to meet industry needs. Another important policy intervention is to improve the quality of education in order to develop generic skills that are relevant to a broad spectrum of industries. An example of this approach is the NASSCOM assessment of competency (NAC) framework, which the organization developed in consultation with a large number of ITES players. The NAC has emerged as India’s national standard for generic skills and recruitment of entry-level talent for the ITES industry, and NASSCOM has rolled out the framework in partnership with a number of state governments in India. The test scores indicate areas for improvement, allowing customization of further training. NASSCOM has subsequently developed a NAC-Tech certification that is focused on benchmarking engineering skills for the IT industry. This too is being rolled out in partnership with state governments. Applying and enforcing common industry certification not only helps to align skills with industry requirements, but also provides IT services and ITES companies with a more accurate estimate of the talent pool available and reduces their recruitment costs. Still another important policy intervention aimed at nurturing the IT services and ITES talent pool is the establishment of mechanisms to allow just-in-time training for IT services and ITES. A number of countries are providing training grants for this purpose. South Africa, for example, offers a training and skills support grant toward the cost of company-specific training up to 12,000 rand (about US$1,700) per agent. Under its ICT Capacity Building Program, Sri Lanka offers grants to fund a portion of the training costs of IT services and ITES companies. Sri Lanka also offers grants of up to US$10,000 to bring in a specialized trainer from abroad under a “train the trainer” program. In November 2007, the president of the Philippines directed the Technical Education and Skills Development Authority (TESDA) to allocate 350 million pesos (approximately $8 million) to provide scholarships for training 70,000 call center agents. In addition, Singapore has a national Skills Development Fund for upgrading worker skills and has launched the Initiatives in New Technology scheme to establish new capabilities within companies or industries by encouraging manpower development in the application of new technologies, industrial R&D, and professional know-how. Given the significant shortage of skills, many large IT services and ITES companies are taking up skills development initiatives, building dedicated training centers, and employing hundreds of training staff. Infosys’s new Global Education Center in Mysore, for example, has more than 300 full-time faculty and is able to train 13,500 employees at a time. The company invested more than US$120 million in this 335- acre, 2-million-square-foot facility. Given the need to address the shortage of skills, a number of IT services and ITES companies are collaborating with academic institutions. In addition to the efforts of IT services and ITES companies to create incentives for training potential employees, some governments and universities have used public funding and public-private partner- ships to nurture and expand the talent pool. Those initiatives have been designed to expand existing university infrastructure and faculty, develop competencies that are benchmarked globally, and forge linkages for skills development with private sector and best-in-class institutions. Source: Sudan et al., 2010. Cambodia Services Trade 12 Performance and Regulator y Framework Assessment Openness, Grow th, and the Composition of Ser vices Expor ts The decline in ICT is particularly important. The how the regulatory framework has impacted on rankings of other countries in the region also fell in the development of the sector. the past 10 years, but Cambodia’s ICT infrastructure and connectivity lag behind other countries in Asia. In summary, although tourism dominates Cambodia’s Broadband connectivity, in particular, has seen little services exports, other services, such as transpor- progress, especially when compared to neighboring tation and business services, have also seen solid countries, thus reducing Cambodia’s attractiveness growth in the past 15 years. Progress, however, for investors in modern services industries. It is comes from a very low base. In order to take advantage clear that Cambodia should give priority to ensuring of the new opportunities created by technological better telecom infrastructure, including the changes and new services activities, Cambodia establishment of a concrete country-wide broad- will need to improve its human skills and electronic band strategy and by reducing regulatory and de infrastructure, two of the three basic requirements facto limitations on foreign investment in for successful services exports. In the next section, communications. Chapter 3 pays further attention we assess the situation of the relevant institutional to telecommunications in Cambodia, and explores and governance indicators in Cambodia. Cambodia Services Trade Performance and Regulator y Framework Assessment 13 Policies, Institutional Setting, and Rule-Making Capacity An efficient and transparent governance and (Figure 2.2). Its commitments reflect the priority of regulatory framework is a key determinant of the attracting foreign direct investment, including in success of the services sector. Although Cambodia, financial services, telecommunications, air and like other developing countries (including in the road transport, logistics, professional services, East Asia region), has taken some steps to improve and higher education (WTO,2011). governance (Figure 2.1), further progress is needed Cambodia undertook commitments on market to ensure an adequate regulatory environment access and national treatment across all main for the services sector. subsectors, leaving the provision of cross-border Figure 2.1 Governance indicators remain low in services in most committed sectors largely free of Cambodia, with little improvement restrictions. Horizontal restrictions on commercial since 1996 presence include restrictions on land ownership, access to subsidies, and investment incentives. Except for a few selected services, such as basic Governance Rating telecommunications, travel agencies, and tour operators, no limitations to foreign ownership exist. A few services, such as low-cost hotel and pension services and some retailing services, were excluded from Cambodia’s General Agreement on Trade and Services (GATS) commitments, as a way of protecting domestic small and medium-size enterprises. Sectors that were largely excluded Source: World Bank, World Governance Indicators, 2012. from WTO commitments, presumably because of the regulatory sensitivities they entail, include Note: Higher Values indicate more positive perceptions. health and social services, basic education, and recreation and cultural services. Services related Commitments to Services and to maritime transport, as well as internal water the Level of Restrictiveness ways transport, were also excluded. Cambodia has also actively engaged in regional International commitments trade discussions in the context of ASEAN, which is now concluding its 10th round of services Cambodia’s accession to the World Trade Organi- negotiations. ASEAN countries have pledged to zation (WTO) represented a landmark in WTO advance toward establishing a single market for history. Cambodia, along with Nepal, was one of the goods and services by 2015 under the ASEAN first low-income countries to join the organization. Economic Community initiative. Cambodia has also It agreed to an ambitious level of commitments signed bilateral agreements on trade in services on services, comparable to the commitments of with Australia, China, New Zealand, and the countries at much higher levels of development. Republic of Korea. Its international commitments Among the more than 40 laws and regulations ensure an open environment to foreign services Cambodia committed to enacting, six relate directly and services providers, through both cross-border to the regulation of services, including postal services, trade and the establishment of foreign commercial tourism, and professional services, i.e. accounting enterprises in Cambodia. Cambodia Services Trade 14 Performance and Regulator y Framework Assessment Policies, Institutional Setting, and Rule-Making Capacity Figure 2.2 Cambodia has made major commitments on services in trade agreements GATS only FTA improvements FTA new modes/subsectors Partial Full Partial Full Partial Full Unbound Business services Communication services Construction and related engineering services Distribution services Educational services Environmental services Financial services Health related and social services Tourism and travel related services Recreational, cultural and sporting services Transport services Other services not includes elsewhere 0% 20% 40% 60% 80% 100% Source: Fink and Molinuevo 2007 Note: Figures are based on Cambodia commitments under the GATS, the AFAS up to the sixth round, and the ASEAN–China Trade in Services Agreement. Policies and regulations The Services Trade Restrictiveness Index developed 100 countries, measures restrictions that apply by the World Bank allows policymakers to assess to financial services (banking and insurance), aggregate quantitative or qualitative measures, telecommunications, retail distribution, and such as quotas, licensing and authorization criteria, transportation. In each sector, the index covers forced establishment requirements, discriminatory measures that affect the establishment of a measures, and joint venture requirements, and commercial presence, restrictions on cross-border to compare their country’s performance with services trade, and the movement of natural performance in other countries.3 The index, based persons, where relevant. on measures that affect services in more than 3 See appendix A for a description of the methodology used in this section. Cambodia Services Trade Performance and Regulator y Framework Assessment 15 Policies, Institutional Setting, and Rule-Making Capacity The index confirms the low level of formal open regime, similar to the regimes in Indonesia legal and regulatory restrictions in Cambodia and Malaysia. Although it has a relatively open (Figure 2.3). Indeed, Cambodia’s restrictiveness transportation sector, it tends to be more restricted index is comparable to the values of Organization than other sectors as is the case in many countries, for Economic Co-operation and Development including developed countries. It is nevertheless (OECD) countries; within Asia, it is lower than all more liberal in Cambodia than in other ASEAN countries except Mongolia. countries. Professional services appear to be Cambodia has one of the most liberal services Cambodia’s most restrictive sector. This finding regimes in ASEAN (Figure 2.4). In telecommuni- is consistent with results elsewhere in the world. cation services, it formally maintains a relatively Figure 2.3 Trade in services in Cambodia is open and relatively unrestricted Note: 0(close) - 100(open). Service Trade Restrictiveness Index 60 50 40 30 20 10 0 Mongolia Cambodia China Viet Nam Malaysia Thailand Indonesia Philippines Source: Borchert, Batshur and Matto, “Policy Barriers to International Trade in Services: New Empirical Edvidence”, World Bank: forthcoming. Note: GDP per capita taken from WDI, 2007 PPP data in constant 2005 international US$. Cambodia Services Trade 16 Performance and Regulator y Framework Assessment Policies, Institutional Setting, and Rule-Making Capacity Figure 2.4 In almost every sector, Cambodia’s services trade restrictiveness index is lower than its neighbors’ Services Trade Restrctiveness Index Source: Borchert, Batshur and Mattoo 2011. Note: Cambodia’s retail index is zero. Cambodia does not limit foreign ownership in the Access to the legal services market is closed, sectors included in the indexes. However, it does because of an authorization requirement that is maintain nationality requirements for professional not granted in practice. The main restrictions on services, which in practice closes the market for transportation services are in maritime auxiliary mode 4 operators. In addition, there is a 49 percent services and foreign ownership limitations in limit to foreign ownership in accountancy firms. domestic air transport. Figure 2.5 Cambodia’s logistics services restrictiveness index is above the average for Asia Services Restrctiveness Index Cambodia Services Trade Performance and Regulator y Framework Assessment 17 Policies, Institutional Setting, and Rule-Making Capacity Hollweg and Wong (2009) assess the regulatory Performance Indicator. The greatest discrimination environment for logistics services in East Asia among domestic and foreign providers is in the by constructing a restrictiveness index based transportation sector, specificallythe maritime on measures that affect customs procedures, and aviation subsectors. investment, movement of people, express delivery, maritime transport, aviation transport, and road To summarize, although Cambodia could benefit transport, distinguishing between measures that from further liberalization (particularly in affect domestic and foreign suppliers (Figure 2.5). professional services), the overall services regime They find that Cambodia’s logistics regulations are appears to be formally open. This regulatory more stringent than the regional average but the environment will determine the extent to which most open among developing countries. Although liberalization of services will provide expected foreign providers are discriminated against, the benefits. Empirical evidence suggests that degree of discrimination (not shown in the figure) countries that liberalize their market, but do not is lower than average in the region. complement the liberalization process with regulations to ensure that markets operate Figure 2.6 shows that customs-related measures freely, will not reap the benefits of more open and account for over half of the restrictions affecting efficient services markets (Goswami, Mattoo, logistics services in Cambodia, which includes and Saez, 2012). Van der Marel (2012) finds documents, licensing, customs clearance time and that services markets need qualitatively better other formalities affecting the cross-border transport government and regulatory governance to develop of goods, and customs brokerage services. However, comparative advantages. The author also finds this index does not capture the significant customs that behind-the-border measures affect the improvements made by Cambodia in recent development of comparative advantages for years, as reflected by the latest Logistics services significantly more than for goods. Figure 2.6 The main source of restrictiveness in Cambodia is customs-related measures Percent Source: Hollweg and Wong 2009. Cambodia Services Trade 18 Performance and Regulator y Framework Assessment Policies, Institutional Setting, and Rule-Making Capacity Institutional Context and Regulatory Procedures Regulations play a key role in bridging information Two other indicators—government effectiveness asymmetries and providing information about and rule of law—are also weak. However, Cambodia the quality of services. They are particularly performs relatively well in terms of perceptions of important in the services sector because of the government’s ability to formulate policies to the intangible nature of services. Many services— promote private sector development (regulatory especially financial services, telecommunications, quality), suggesting that its market-oriented and transportation—are heavily regulated in reforms are widely seen as positive developments. order to ensure the stability of the system, limit anti-competitive behavior, and protect consumers. The rest of this section examines the institutional Indeed, the quality of the institutional framework and regulatory framework relevant to trade and and the regulatory environment is as important investment in services in Cambodia. It analyzes a determinant of the development of the services the national government’s broad institutional sector as the opening and liberalization process capacity to design, adopt, and implement regulations itself. Furthermore, the quality of institutions conducive to an efficient sevices market; compares matters in the design of policies to promote legal and regulatory procedures in Cambodia services exports (Goswami, Mattoo, and Saez, with internationally recognized principles of good 2012). Studies on services exports based governance and best regulatory practices; and on bilateral trade confirm the importance of a describes horizontal laws and regulations that transparent and efficient institutional environment affect services, focusing on two key sub-sectors, (Grünfeld and Moxnes, 2003; Lennon, 2006, Van der telecommunications and professional services. Marel, 2012). The institutional capacity to design adequate policies, regulate different services A number of developed and developing countries sectors, and ensure compliance with laws and have introduced mandatory procedures or guide- regulations is thus a key driver of success. lines that govern the regulatory process itself, in order to make sure that government regulatory Cambodia has made important efforts in recent actions abide by general good governance years to reform and improve the institutional and standards. Different countries recognize different regulatory environment. Although it enacted the guiding principles on good regulatory practices, Anti-Corruption Law in 2010, these reforms have generally reflecting idiosyncratic regulatory not yet produced tangible results, and it will likely conditions. Members of Asia-Pacific Economic take years to improve the country’s governance Cooperation (APEC) and Organization for Economic indicators (See figure 2.1). Co-operation and Development (OECD) jointly prepared a checklist for regulatory reform Cambodia’s overall transparency and institutional (Box 2.1), building on the 2005 OECD Principles quality remain below the regional average, ahead of for Regulatory Quality. only the Lao PDR in the sample of countries shown in Table 2.1. Despite the 2010 law, the perception of limited controls on corruption is the worst in the region. Cambodia Services Trade Performance and Regulator y Framework Assessment 19 Policies, Institutional Setting, and Rule-Making Capacity Table 2.1 Indicators of institutions and governance in selected countries in East Asia and Pacific [2010] and Pacific Philippines Cambodia East Asia Malaysia Thailand Lao PDR Vietnam Indicator Regulatory quality 3.15 0.96 5.68 4.79 5.96 2.26 5.38 Rule of law 1.37 1.64 6.71 3.63 5.41 4.32 6.13 Government effectiveness 2.05 0.96 7.74 4.73 5.75 4.18 6.2 Voice and accountability 2.4 0.41 3.29 4.93 3.7 0.82 4.49 Control of corruption 0.62 0.75 5.75 2.67 5 3.49 6.4 Source: World Bank, World Governance Indicators. Note: Normalized values in a 0-10 scale. Higher values in dicate more positive perceptions. All of these approaches seek an adequate regulatory sector should be an institutional component of framework that, at a minimum, incorporates the the regulatory process. following features. Agency coordination: Regulation should take Transparency: Regulatory action should be known place at the right level of government, and benefit within and outside government agencies; regula- from relevant inputs, taking into account all relevant opinions. tion should be simple, coherent, user friendly, and easily publicly available at all times. Efficiency: Regulators should consider the full range of regulatory options and evaluate the Stakeholder consultations: Links with the private impact of regulation. Box 2.1 Good regulatory principles: Excerpts from the APEC–OECD Integrated Checklist on Regulatory Reform Regulatory reform refers to changes that improve open to regulated parties and other stakeholders, regulatory quality to enhance the economic non-governmental organisations, the private performance, cost-effectiveness, or legal quality of sector, advisory bodies, accreditation bodies, regulations and related government formalities. standards-development organisations and other governments? A. Horizontal Dimension B8. To what extent have measures been taken A1. To what extent is there an integrated policy to state, local, supranational)? for regulatory reform that sets out principles A6. Are the policies, laws, regulations, practices, dealing with regulatory, competition and market procedures and decision making transparent, openness policies? consistent, comprehensible and accessible to A5. To what extent has regulatory reform, including users both inside and outside government, and to policies dealing with regulatory quality, competi- domestic as well as foreign parties? And is effec- tion and market openness, been encouraged and tiveness regularly assessed? coordinated at all levels of government (e.g., A8. To what extent are there effective interminis- Federal, process itself transparent, clear and terial mechanisms for managing and coordinating predictable to users both inside and outside the regulatory reform and integrating competition government? and market openness considerations into regula- B5. Are there effective public consultation mecha- tory management systems? nisms and procedures including prior notification Cambodia Services Trade 20 Performance and Regulator y Framework Assessment Policies, Institutional Setting, and Rule-Making Capacity B. Regulatory Policy B2. Are the legal basis and the economic and social C12. In the absence of a competition law, to what impacts of drafts of new regulations reviewed? extent is there an effective framework or What performance measurements are being mechanism for deterring and addressing private envisaged for reviewing the economic and social anti-competitive conduct? impacts of new regulations? B4. To what extent are rules, regulatory institutions, D. Market Openness Policies and the regulatory management assure compliance D2. To what extent does the government promote with and enforcement of regulations? approaches to regulation and its implementation that are trade-friendly and avoid unnecessary C. Competition Policy burdens on economic actors? C9. To what extent does the competition law apply D8. To what extent are measures implemented in broadly to all activities in the economy, including the countries accepted as being equivalent to both goods and services, as well as to both public domestic measures? and private activities, except for those excluded? Source: OECD 2005. Institutional Framework and Rule-Making Process The Council of Ministers represents the Royal Sub-decrees (anukret) are generally used to Government of Cambodia (RGC), the country’s implement and clarify specific provisions of a law. executive power. The RCG is responsible for Ministerial orders (prakas) are issued by establishing Cambodia’s economic policy, ministers in exercise of their own regulatory power. including foreign trade and investment policies. They do not generally bind other ministries or Either house of parliament or the RGC may the government as a whole, though they do initiate legislation. In practice, however, the bulk bind the public (Pohl, 2011). of legislation originates in the executive and is submitted to the National Assembly only after it has been agreed to by the RGC and approved by the Transparency prime minister. Article 93 of Cambodia’s constitution requires that all laws be published in the Journal Official. The main legal and regulatory instruments in Despite this requirement, there is no official Cambodia take the following forms (CDC 2010): journal publicly available.4 Cambodia thus has no consolidated public record of the laws and Laws (chhabab) are passed by the National regulations that are enacted or currently in force. Assembly. Royal krams (preah reach kram) and royal Individual ministries and regulatory agencies decrees (preah reach kret) are issued by the do make an effort to publish laws, sub-decrees King and presented by the Prime Minister. and, to a lesser extent, prakas relevant to their 4 While there is conflicting information about the existence of a formal official journal, it is agreed that no instrument currently provides the general publicity to the laws and regulations being enacted. Cambodia Services Trade Performance and Regulator y Framework Assessment 21 Policies, Institutional Setting, and Rule-Making Capacity portfolio. The Council for the Development of Regulatory process Cambodia (CDC), which is in charge of implementing policies on foreign investment, for instance, The regulatory process itself also remains provides a list of laws and regulations that is uncertain. Ministries and agencies tend to act translated into English on its website. Similarly, in advance on regulations, without publicizing their Cambodia’s Central Bank identifies regulations actions. Although consultations are often held on its website, including prakas and circulars, with other agencies or the private sector, there relevant to the financial services sector. The website is no regular practice of informing stakeholders, of the Ministry of Tourism (MoT) also features or any formal channel for doing so. As a result, some measures relative to its sector (in Khmer regulations are adopted, or even come into force only). Not all of these databases are equally without being announced, in cases demanding comprehensive or up to date, largely because immediate action by the regulated companies. individual ministries, rather than regular institutional channels, provide the data. In addition, although the technical capacity of Cambodia’s regulators has improved in recent Laws and regulations from other ministries that are years, regulatory quality remains weak. Regu- unavailable online are generally available at the lations are often vague, requiring exchanges ministries themselves, and access to them is with the regulator to clarify their terms. normally granted to any inquiring party. However, In addition to making implementation of the navigating the ministries, and approaching the regulation difficult, this lack of regulatory clarity correct desks for information, requires considerable increases the discretionary power of low-level familiarity with Cambodia’s administrative maze. officials—and with it the ability to demand The problem is exacerbated by the fact that minor informal payments from business operators. administrative directives—regarding, for instance, In the transport and logistics services market, documents required for certain presentations, the opacity of the regulatory framework has time schedules, or relevant desks for submission of information tend to change regularly, in general led to extensive demand for informal payments, without written public notice. significantly raising logistics costs and reducing manufacturing firms’ investment in in-house Publication efforts made by individual ministries logistics (Kunaka et al 2012). and agencies go a long way toward providing a general view of the regulatory environment in the Stakeholder consultations country. They fall short of a comprehensive system for public disclosure of administrative acts, With the support of the International Finance however—and the requirements of Cambodia’s Corporation, Cambodia has established a broad own constitution. The lack of a comprehensive system public- private dialogue mechanism on economic raises entry costs for investments,as newcomers policies. The Government - Private Sector have to resort to specialized services to obtain Forum (G–PSF) was established in 1999 to reliable information on the legal and regulatory provide a mechanism for consultation between framework governing their business. As a result, the RGC and the private sector, and to encourage the costs of starting a business are significantly private sector initiatives on business climate and higher in Cambodia than in neighboring countries regulatory conditions. or the region as a whole.5 5 Doing Business (World Bank 2011) estimates the official costs of starting a business in Cambodia at 109 percent of per capita income—many times the average for the East Asia and Pacific region (22.7 percent) and multiples of the cost in neighboring countries (16.4 percent in Malaysia, 10.6 percent in Vietnam, 7.6 percent in Lao PDR, and 6.2 percent in Thailand). Cambodia Services Trade 22 Performance and Regulator y Framework Assessment Policies, Institutional Setting, and Rule-Making Capacity The G-PSF has provided a substantial channel advice, but they do not usually do so through the of communication and advocacy; it has allowed official channels of the G-PSF. Consultations economic reform issues to be discussed and therefore involve only parties selected by successfully introduced in the policy agenda the government, as it is not normally considered (Figure 2.7). The RGC also uses this mechanism necessary to extend such discussions to a broader to improve its own communication, coordination, audience, and there are no specific requirements and internal accountability (Sisombat 2009; World to do so. Third, prakas and other agency-specific Bank 2009). The G-PSF has created a mutually regulations seldom benefit from private input, beneficial dialogue between the Cambodian because the G- PSF discussions occur at a government and the private sector that has higher level; and to date no platform exists to improved the quality of the decision-making and engage, or even inform the broader public about regulatory capacity of the administration. The these regulatory initiatives. The main challenges system, however, could benefit from additional in stakeholder consultations in Cambodia are mechanisms to foster such exchanges. thus to: (a) capitalize on the success of the existing dialogue and the political willingness of the RGC Figure 2.7 Evaluation of public-private dialogue and the Prime Minister to engage; and (b) expand in Cambodia consultations to a broader audience with a wider Mandate and Institutional range of issues, beyond the ad hoc initiatives of alignment: 10 Structure and individual ministries, or the highly formalized Development partners: participation: 8 context of the G-PSF. One way of doing so would Post-contflict- 6 Champoin(s) and be to provide opportunities for the private sector reconciliation: leadership: 4 ggg and civil society to express their views on International 2 Facilitation and regulatory matters on a regular basis by, for role: 0 managemet: example, submitting written communications on laws and regulations in preparation. sectorspacific: Outputs: Sub-national: Outreach and Inter-agency coordination communication: Monitoring Different approaches by ministries and government agencies exist regarding internal coordination Source: World Bank 2009. procedures. Some ministries - especially ministries addressing horizontal issues, such as First, partly because of its own success, the the Ministry of Commerce - promote coordination G-PSF has de facto become the main and only with other agencies by occasionally inviting other institutional mechanism for dialogue between relevant ministries to comment on the drafts private parties and the government. Businesses they produce. that are not engaged in the G-PSF initiative have This practice, however, is not a standard one, and no opportunities to have their voices heard or different agencies remain free to decide when, and even to be made aware of the main regulatory whether, any regulation under their consideration issues under discussion. may benefit from inputs from other agencies. Second, although the government is engaged in Where such invitations are extended, the scope the G-PSF, the agenda relies heavily on the initiative of the involvement of the invited agency in the of private sector counterparts; the government development of the regulation depends largely rarely brings its own regulatory concerns to the on the familiarity between the agencies, and the table. Indeed, where ministries and agencies willingness of the inviting ministry to share the consider that regulatory action is needed, they regulatory task. Because of the largely ad hoc normally proceed on their own. Some ministries nature of the procedure, written records of the reach out to the private sector for technical collaboration may or may not be kept. Cambodia Services Trade Performance and Regulator y Framework Assessment 23 Policies, Institutional Setting, and Rule-Making Capacity The ability to invite another institution to comment, With varying degrees of sophistication, many and to consult with private parties, remains a developed countries and some developing discretionary decision on the part of the regulating countries have established institutional and pro- institution. If the regulating agency does cedural mechanisms to try to achieve regulatory not engage in such consultations, interested efficiency (Kirkpatrick, 2004; Ladegaard, 2005; ministries must wait until the presentation of IFC, 2009). At a minimum, these initiatives seek the draft bill or regulation at the inter-ministerial to promote the consideration of alternatives when meeting to provide comments, and bring the issue introducing regulation, evaluating the different to the attention of the prime minister. Indeed, it quantitative and qualitative benefits and costs is likely that other agencies may only then learn each may entail. More complex systems require about the existence of the regulatory initiative. studies to assess the economic impact of laws This absence of clear procedural guidelines, along and regulations, and their alternatives, as a with a lack of clear delineation of responsibilities mandatory step in the regulatory procedure among ministries, has led to overlapping and (regulatory impact assessments). inconsistent prakas (Pohl 2011). No such system exists in Cambodia. The informality The ministries and agencies in the RGC favor of the regulatory process means that the regulator inter-agency collaboration and generally welcome conducts the substantive analysis of proposed inputs from other ministries. But the absence of regulation on a case-by-case basis. clear policies governing the regulatory process It is current practice in the RGC that draft laws has resulted in patchy and ad hoc procedures, and sub-decrees are discussed with representa- which limit regulatory co-operation. tives of Economic, Social, and Cultural Council (ECOSOCC) and the Council of Jurists. ECOSOCC Regulatory efficiency tends to focus on the substance of the rules, whereas the jurists assess the legality of the Regulation is efficient if it is well targeted to proposed instrument. The analysis, however, address the relevant problem and conducive remains rather superficial. To address this problem, to achieving the desired policy goal, promotes the Asian Development Bank is seeking to reinforce innovation and competition, and avoids erecting the technical capacity and procedures at undesirable barriers to trade and investment. ECOSOCC, to include elements of economic analysis Regulatory measures should avoid imposing in their evaluations, with a view to promoting the unnecessary burdens on society, consistent with use of regulatory impact assessment in the future achieving regulatory objectives, and minimize (Pohl, 2011). adverse impacts on citizens and businesses. Cambodia Services Trade 24 Performance and Regulator y Framework Assessment Policies and the Regulatory Framework for Services Measures affecting the services sectors can be regulate one mode of supply, or some aspect reflected either in general laws and regulations, thereof, such as measures on foreign investment or or in specific ministerial measures, governing a the movement of persons. Since most of international specific services sector. In that sense, two levels trade in services occurs through the establishment of regulation can be distinguished: of a services provider in the foreign market, rules on foreign investment are central to the regulation i) horizontal regulation, which includes measures of the services industry. Similarly, measures affecting all services industries, such as relating to the movement of people also affect limitations on the movement of people, caps services trade, not only because they directly on foreign equity participation, or legislation impact on the ability of individual service providers granting preferential treatment to some to supply services, but also because they entail minorities; and barriers to foreign investment. Second, general ii) sectoral regulation, which includes laws and public policies pertaining to taxation, land use, regulations aimed at governing a certain etc.—regardless of whether or not they are directed services industry. Sectoral regulation may toward economic goals—will also affect the range from a rather broad framework - covering regulatory framework for services industries, in all transport services, for example - to specific particular for those wishing to establish rules on a given type of service. This services- themselves in the country. This section highlights specific regulation includes, for example, some of the most relevant horizontal measures measures on rules on the provision of legal affecting the services industry in Cambodia. services, or the supply of some specific telecommunication services. Foreign investment The following section analyzes the policy and The Council for the Development of Cambodia regulatory environment for services trade by (CDC) and the Cambodian Investment Board are looking at the main horizontal laws and regulations Cambodia’s mandated institutions in the area of affecting the provision of services. It then examines investment promotion and facilitation. The CDC is the regulatory framework of three services the foreign investment approval body. As a one- subsectors: telecommunications, professional stop shop for facilitating foreign direct investment, services, and tourism. it administers all strategic and regulatory aspects of qualified investment projects. Although the law Horizontal Regulatory stipulates that the CDC procure all necessary Framework licenses from relevant ministries, agencies, and sub- national administrations on behalf of the Two sources of horizontal regulation can normally applicant, in practice prospective investors are be found. First, there are measures designed to expected to do so themselves (CDC, 2010). Cambodia Services Trade Performance and Regulator y Framework Assessment 25 Policies and the Regulator y Framework for Ser vices With the exception of a few sensitive mining and (domestic or foreign). Most port facilities in manufacturing industries, all sectors are open Cambodia are owned and operated directly by the to foreign investment.6 Participation by wholly public port authorities; port operation is closed foreign-owned service providers is also allowed, to foreign capital participation. Cambodian laws except in certain sectors that require equity stipulate that the government must retain a participation by a Cambodian national or special majority ownership and control of basic airport governmental authorization for foreign involve- infrastructure and aeronautical navigation ment. These sectors include port and airport services infrastructure. Foreign capital participation operation, energy distribution, publishing and in the airport operation sector is thus limited to printing, and radio and television transmission less than 50 percent. Despite this relatively open services. The only national transmission license investment regime, FDI has remained concentrated is granted to the publicly owned electricity in a few sectors. Services, in particular the tourism company, Electricité de Cambodge (EdC). This sector, constitute the majority of the FDI projects sector is thus closed to private investment approved by the CDC (Figure 3.1). Figure 3.1 Tourism attracts the majority of FDI projects 12,000 Agriculture 10,000 Industy USD Million 8,000 Services Tourism 6,000 Other Services 4,000 2,000 0 2007 2008 2009 2010 2011 Source: Council for Development of Cambodia. In principle, establishing a foreign-owned limited for investment incentives or a tax exemption. liability company in Cambodia requires 10 Foreign companies are also free to open and procedures and 86 days, somewhat slower maintain bank accounts in foreign currency. This than the regional average for the East Asia and open framework for foreign participation, together Pacific region or the IAB global average (Table with the quick growth of the economy, has 3.1). A limited liability company must have at contributed to an impressive performance of least 2, and no more than 30 shareholders. No foreign direct investment into Cambodia in recent years. additional procedures are required for foreign companies, other than the authentication and Nevertheless, despite this inviting legal context, notarization of the parent company’s documents, Cambodia ranks poorly in terms of conditions for which must be submitted to incorporate the establishing and operating a business. Although subsidiary. Investment approval is not required, the reported number of days and procedures for unless the foreign company applies to the CDC starting a business are in line with the regional 6 Sub-Decree No. 111 prohibits the following activities for both Cambodian and foreign entities: production and processing of psychotropic substances and narcotic substances; production of poisonous chemicals, agriculture pesticide/insecticide, and other goods by using chemical substances prohibited that affect the public health and environment; processing and production of electrical power by using any waste imported from a foreign country; and forestry exploitation business. Cambodia Services Trade 26 Performance and Regulator y Framework Assessment Policies and the Regulator y Framework for Ser vices average, the ease-of-establishment indicator, which efforts to improve the system, business practices evaluates the regulatory regime for business remain unclear, cumbersome, and inconsistent. start-up, is below par, suggesting that regulation Some regulations tend to change regularly, altering and practices need to catch up with the intended the process, times, forms, or necessary documen- straightforwardness of the system. tation. As a result, businesses must periodically The low ease-of-establishment indicator is confirmed confirm the procedures, often through personal by practitioners, who point out that, despite contacts with different government officials. Table 3.1. Ease of investing indicators in selected countries in East Asia and Pacific [2010] Philippines Cambodia Malaysia Thailand Regional Vietnam average average Global Indicators Procedures (number) 10 12 9 11 17 11 10 Time (days) 86 94 34 14 80 64 42 Ease of establishment index (0-100) 44.7 57.9 60 60.5 57.9 57.4 64.5 Source: World Bank, Investing Abroad 2010. Little or no discrimination of foreign investors is Firms in Cambodia are free to hire foreigners as evident, either at the time of initial investment well as Cambodians, an option that allows them or after investment. However, some foreign to circumvent the shortage of technical skills businesses report that Cambodian firms benefit and expertise in the domestic labor market. The from the lack of transparency and poor enfor- hiring of foreign employees is formally subject to cement of regulations, including by evading taxes, an economic needs test; permission to employ failing to comply with safety or other standards, foreign nationals or bring in foreign employees is or providing informal payments where necessary granted only where the relevant qualifications (USTR, 2012).7 and expertise cannot be found domestically. This requirement is not normally imposed as an obstacle to the hiring of foreign staff, however, although Movement of persons and employment the 10 percent ceiling on foreigners in a company’s Under the GATS, Cambodia committed to allow total workforce is applied. for the entry and stay of business visitors (up to 90 days), people seeking to set up a commercial Other horizontal regulations establishment (unlimited stay), and intra-corporate transferees (for a maximum of five years). The Land use. Article 44 of the Constitution provides intra-corporate transferees category applies to that only Cambodian citizens and legal entities executives, managers, and specialists. Cambodia’s have the right to own land. A legal entity has multilateral commitments do not cover independent Cambodian nationality if 51 percent or more of its services providers, such as consultants and voting shares are held by Cambodian citizens or by technical experts. However, no specific restrictions another legal entity. Land can also be owned by against such services providers are in place. public Cambodian communities or associations. 7 The 2007 DTIS noted that a major weakness of the investment framework was the lack of a predictable and transparent set of rules that are enforced in a prompt, fair, and efficient manner by the appropriate government institutions. Cambodia Services Trade Performance and Regulator y Framework Assessment 27 Policies and the Regulator y Framework for Ser vices Cambodia’s Investment Law, however, permits Telecommunications services investors to use and develop land and to sign unlimited long-term lease agreements. International obligations. Cambodia’s accession to the WTO set the ground for an open market policy Privately and publicly-held land can be leased. for the telecommunications sector, based on foreign However, because of the difficulty of enforcing participation and market competition. Cambodia legal rights against the state, and the additional also committed to establish an efficient regulatory legal formalities and procedures that must be framework, headed by an independent regulator. followed, public land is rarely leased (IFC, 2010). Value-added telecommunication services, including The regulatory framework regarding land use is mobile services, were immediately opened up to weak. The title registration system is still developing, full foreign participation. Cambodia also agreed to and many land transactions are not properly ban restrictions on the provision of cross-border registered, leading to frequent land disputes. telecom services after 2009, and to open Finding land-related information—such as documen- land-based basic telecommunication to foreign tation on land plot value, mailing addresses, ownership, although domestic participation of up environmental impact assessments, tax classifica- to a maximum of 49 percent may be required. It tions, and utility connections—remains a challenge. agreed to regulate the sector according to the guidelines of the WTO Telecom Reference Paper, Competition policy. Cambodia has indicated its including through safeguards to prevent anti-com- desire to discourage monopolistic trading petitive practices, non-discriminatory access to arrangements in most sectors. It has committed interconnection, transparency of inter-connection to adopt a competition law as part of its WTO arrangements, universal services, public availability obligations, but no antitrust legal framework has of licensing criteria, and establishment of an yet been established. independent regulator. Sectoral Regulatory Regulatory framework. Cambodia’s regulatory framework on telecommunications remains Frameworks patchy, opaque, inconsistent, and non-transparent, This section illustrates the problems of Cambodia’s with many administrative decisions not made regulatory framework in three critical services public. Several attempts have been made in recent sub-sectors. It analyzes how the observance, or years to produce a telecom law, drafts of which lack thereof, of good governance principles has were discussed at Cabinet meetings, but to no affected the development of telecommunication avail. In the absence of such a law, the Ministry of services, tourism, and professional services. Posts and Telecommunications (MPTC) acts as the These sub-sectors were selected because of their policymaker as well as the regulatory and importance to the Cambodian economy, including supervisory authority in the sector, overseeing the export of services, their supporting role to the issuance of licenses and the administration of export of services, and more broadly due to their the spectrum. The General Directorate of Posts and role in the country’s competitiveness. Further- Telecoms functions as the implementing agency more, these sub-sectors provide a spotlight on the within the MPTC. Until the establishment of regulatory and institutional conditions of services Telecom Cambodia in 2006, the state-owned that are commonly regulated i) at the ministry MPTC also directly operated in fixed-line telephony level (tourism), ii) by a public independent regulatory and internet markets as the monopoly provider. body (telecoms), and iii) by private agencies in Telecom Cambodia remains tightly linked to the coordination with the ministry (professional services). government, under the technical administration 8 Relevant measures include Inter-ministerial Prakas 232; prakas on interconnection; the Order or the RGC Letter No. 1 BB of October 21, 2009; and MPTC Letter No. 591 of May 5, 2009. Cambodia Services Trade 28 Performance and Regulator y Framework Assessment Policies and the Regulator y Framework for Ser vices of the MPTC, and the financial administration of Telecommunications operators are normally the Ministry of Finance (DFDL, 2011). required to share up to 10 percent of their revenues and dividends with the MPTC, although The MPTC regulates the sector under the authority terms vary on a case-by-case basis (as negotiated by of a sub-decree, through the issuance of prakas and the ministry and the operator). Tariffs vary depending the administration of licenses. Relevant prakas on the conditions of the licenses. For example, cover interconnection requirements and fees, price licenses for fixed- line operations or international floors for mobile telephony, data records, and use traffic may require that the operator share up to of radio frequency and communications equipment.8 50 percent of gross revenues (DFDL, 2011). Although the technical capacity of the MTPC to regulate has improved in recent years, the ministry The challenges of the current regulatory environment lacks adequate staffing to stay abreast of the are evident in the most dynamic telecom increasingly complex technical issues of the subsector, mobile telephony.Lack of compliance different components of the telecommunications with transparent interconnection agreements and sector. Many MPTC professionals lack a background the existence of a dedicated dispute settlement in telecommunications, engineering, or related procedure—both requirements of the Reference fields. This deficit in skills is exacerbated by the Paper—are evident competitive practices for wide salary differential between the public service below-cost pricing and a company was accused and the private sector, where professionals earn of denying interconnection to the entrant. The four to five times as much as regulators. MPTC failed to mediate effectively in the The number of mobile phone subscribers in Cambodia has soared, but fixed line and Internet connectivity Figure 3.2  remains low 8 7 Million Subscribers 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 2009 2010 Fixed 37590 45000 50000 37525 43417 42000 358850 Mobile 660933 837020 1136381 1400314 3731894 4242000 7533029 Internet 7671 8632 9089 10831 20402 29589 194282 Source: Ministry of Posts and Telecommunications of Cambodia. Presentation at ITU-ADB Workshop, Phnom Penh February 2011 (http://www.itu.int/ITU-D/asp/CMS/Events/2011/ITU-DB/Cambodia/Telecom_Infrastructure_MPTC.pdf) dispute, which was settled after the prime minister on occasion without notifying the original user of that issued a letter to all service operators reminding frequency, necessitating costly technical adjust- them of their interconnection obligations. A ments to accommodate the narrower spectrum. prakas was passed establishing a minimum price for mobile calls. However, because of lack of The adoption of a law on telecommunications is effective enforcement, it has not been complied with. a necessary step towards clarifying the legal framework for telecom providers, and establishing The allocation of radio spectra has also been at the heart of allegations regarding lack of transparency. an independent regulator to monitor the system. Some operators have claimed that the same The activities of the regulator must be transparent spectrum has been allocated to different providers, and its technical capacity enhanced. Cambodia Services Trade Performance and Regulator y Framework Assessment 29 Policies and the Regulator y Framework for Ser vices Market development. The telecommunications 3.3). Land-based communications, operated by market has shown contrasting results since its the state- owned Cambodia Telecoms, started to opening to private investment in 2006 (Figure improve in 2009, but they remain poor, accounting 3.2). According to MPTC statistics, the number of for less than 5 percent of the country’s telephone mobile subscribers increased by a factor of 10 lines. Mobile telephony costs are among the lowest between 2004 and 2010, from 660,000 to 7.5 in the region. In contrast, broadband internet prices million. Press reports suggest that that figure are prohibitively high—up to US$40 a month in doubled in the last two years, overtaking Cambodia’s some provinces. The limited fixed-line infrastructure has been a major inhibiting factor in the expansion population. Although it is catching up quickly, of broadband Internet services. To overcome mobile telephony penetration in Cambodia is still this limitation, some operators have applied for the lowest in East Asia, likely as a result of the wireless broadband licenses, including for the later start and the preference of providers to provision of local fixed-lined telephony and concentrate on more heavily populated areas. broadband network (‘wireless local loop’ networks). Eight service providers serve the highly competitive Deficiencies in the regulatory framework and market, although consolidation is expected. In line licensing are reportedly limiting the expansion of with Cambodia’s WTO commitments, foreign this technology. equity participation is not restricted. All providers Lack of an adequate regulatory framework has are foreign owned, including with 100 percent hampered expansion of internet communications, foreign equity. Most investments in telecoms as providers are unclear about costs, rights, and originate from the East Asia region. obligations. The lack of investment is dramatically reflected in the mere 1.2 percent penetration The dynamism of the mobile communications in Cambodia, the lowest in the region and among market contrasts with the much slower development the bottom 10 of 200 economies measured by the of the fixed-line and internet market (Figure International Telecommunications Union in 2010. Figure 3.3 Internet and mobile phone subscriptions in Cambodia were the lowest in the region in 2010 a. Internet b. Mobile phones 175 .3 60 56.3 1 80 Subscriptions per 1,000 inhabitant Subscriptions per 1,000 inhabitant 1 50 119 .2 40 1 20 103 .6 91 .7 27.5 85.7 25 90 21.2 64.6 57 .7 20 60 9.9 7 30 1.2 0 0 es a .R a es a am a di .R a nd si in a am si di D si nd in bo si D ne pp ay P. bo la ne N pp ay P. la N am do ili ai al am o et do ili al ai o et La Ph Th M La In Ph Th Vi C M In Vi C Source: International Telecommunications Union. Cambodia Services Trade 30 Performance and Regulator y Framework Assessment Policies and the Regulator y Framework for Ser vices Figure 3.4 Cambodia’s telecommunication sector is formally less restrictive than average in East Asia Restrictive ness Index, but regulatory problems limit the entrance of foreign players 50 Services Trade Restrictiveness Index 45 40 35 30 25 20 15 10 5 0 OECD Europe and Latin America Cambodia Middle East East Asia Sub-Saharan South Asia Central Asia and Carribean and North Africa Africa Source: : Borchert, Batshur, and Mattoo 2011. The trade restrictiveness index of Cambodia’s penetration accelerates economic growth by telecom industry is lower than the average for the 1.38 percentage points—more than in high-income region (Figure 3.3). But Saing and Phann (2010) countries and more than for other telecommuni- find that despite its formal openness, foreign cations services (World Bank, 2009) (Figure 3.5). investment is tightly restricted, and firms with Kim (2011) finds that a 10 percent increase in foreign participation are discriminated against, as broadband household penetration increases GDP a result of anti-competitive practices by by 0.1 to 1.4 percent. The increase is also correlated domestic providers. They note that the absence of with 1.5 percent greater labor productivity adequate licensing regulation, as well as centralized growth over the following five years. decision-making by policymakers and regulators, In addition to enhancing the competitiveness of creates an uncertain business environment that the economy, telecommunication services, in has limited the interest of world-class telecom particular broadband internet services, provide operators in Cambodia’s small market. a channel for services exports. Cambodia’s 3D Lack of access to the Internet is restraining growth animation studios suggest that Cambodia has the in Cambodia. In low- and middle-income countries, ability to attract investments capable of producing every 10 percentage point increase in broadband niche high-value services exports (Box 3.1). Figure 3.5 Access to broadband technology accelerates economic growth, particularly in low- income countries 1.6 1.38 1.4 1.21 1.2 1.12 Percentage Point * 1 0.81 0.77 0.8 0.73 0.6 0.6 0.43 0.4 0.2 0 Fixed Mobile Internet Broadband High-income economies Low-income economies Source: World Bank 2009. Note: * Percentage point increase in economic growth per 10 percentage piont increase in telecommunications penetration. Cambodia Services Trade Performance and Regulator y Framework Assessment 31 Policies and the Regulator y Framework for Ser vices Box 3.1 Exporting high-skilled niche services: Cambodia’s nascent computer animation industry Computer animation is a multi-billion dollar global and initiate them into the visual and performing industry. Traditionally associated with the arts. Its animation studio specializes in cartoon entertainment industry in the form of cartoons, animation, in particular for raising awareness. computer animation has expanded to live films Objectif 3D, a French Company, specializes in and animated movies, advertising, institutional animation for the post-high school education industry. films, architecture, software, video games, and These initiatives could serve as spearheads to educational software. Each 3D animation product develop a cluster of high-skilled IT services that entails team work of technical experts, including would attract specialized foreign direct investment. modelers, mappers, animators, renderers, and Policies are needed to ensure that adequate compositors. Two Cambodian institutions are infrastructure and skills are available and that an already operating in this high-tech field. Phare enabling environment is created to attract foreign Ponleu Selpak is a Cambodian non-governmental investment in high-value niche fields. organization started in 1986 to bring together children from a refugee camp on the Thai border Source: Authors. Significant improvement in the legal and regulatory for interconnection procedures and licensing terms; environment for telecommunication services would and establishing predictable rules and practices promote competitiveness and allow Cambodia to in the adoption, administration, and enforcement explore new services export niches. The main guide- of telecom regulation. lines toward reforming the telecom sector include: In addition, Table 3.2 offers a brief review of measures setting up an independent, technically skilled and policies undertaken in other countries with regulator; regard to implementing policies to enhance their developing a clear and transparent regulatory broadband infrastructure. framework for telecommunications, including Table3.2 Key policies and programs for building the broadband ecosystem Universal service: Component Early stage: Promote Mass market: Oversee Universalize  evelop an enabling environ- D C  onsider infrastructure  ndertake, using public- U ment through policies and sharing, including unbundling private partnerships as Networks regulations that promote the local loop. appropriate, deployment of investment and market entry. Reallocate spectrum to  open access broadband Reduce administrative  increase bandwidth networks in high cost or burdens and provide remote areas. incentives and subsidies  C oordinate access to for research and development, rights of way. pilots, and network rollout.  Create certification systems for cyber buildings.  Allocate and assign spectrum for wireless broadband services Cambodia Services Trade 32 Performance and Regulator y Framework Assessment Policies and the Regulator y Framework for Ser vices  rovide broadband networks P  reate an enabling C C onsider expanding Services to schools, government environment for intra- and universal service obligations agencies, and the like intermodal competition. to include broadband. (using the government  Ensure nondiscriminatory as an anchor tenant). access for service, Standardize and monitor  application, and content service quality. providers  Undertake government-led demand aggregation, with Support secure, private,  D  evelop advanced government agencies as early and reliable e-commerce e-government programs. adopters and innovators. transactions. Offer grants to community  Provide e-government and  Implement intellectual champions and broadband Applications education applications. demand aggregators. property protection  romote creation of P digital content. Develop local content and  hardware sectors. Provide low-cost computers   stablish ethical guidelines E  xpand universal service  E and other user devices for information use.  programs to underserved (for instance, in education). communities  evelop digital literacy D C reate community  Users programs for citizens access centers  S ubsidize user devices for poor households Source: Kim, Kelly, and Raja, 2010 Professional services As part of its WTO accession, Cambodia agreed to These commitments have been expanded in the an open professional services sector. It committed context of the ASEAN Framework Agreement on to all main activities identified in the WTO Services Services (AFAS) negotiations, through the Sectoral Classification List (the “W120” list), with conclusion of several regional Mutual Recognition the exception of some health services (medical Agreements (MRA). MRA have been concluded on services; services provided by nurses, midwives, engineering, nursing, architectural, medical, physiotherapists, and para-medical personnel; and dental, and tourism services. In addition, two veterinary services) and the residual professional framework arrangement s, establishing the services category. guidelines for the later conclusion of a mutual recognition agreement between all or some Cambodia allows cross-border provision of ASEAN members, have been agreed to on accounting professional services for all listed professions services and surveying qualifications. (legal, tax, architectural, and engineering services) except accounting—for which a local presence is Accounting and auditing services. Aware of the mandatory— and medical services. Commercial importance of reliable financial information for presence in these professional services is largely attracting foreign investment and administering its unrestricted. The only restrictions relate to local domestic finances, Cambodia started regulating partnership requirements for the provision of legal accounting and auditing services, with a view to and medical services. enhancing capacity in the sector, before the conclusion Cambodia Services Trade Performance and Regulator y Framework Assessment 33 Policies and the Regulator y Framework for Ser vices of its WTO accession. The Law on Corporate Legal services. The provision of legal services in Accounts, their Audit and the Accounting Profession Cambodia is governed by the 1995 Law on the Bar, of 2002 created Cambodia’s two main institutions which created the Bar Association of the Kingdom in the sector, the National Accounting Council of Cambodia, charged with the oversight and (NAC) and the Kampuchea Institute of Certified registration of the legal profession. During WTO Public Accountants and Auditors (KICPAA). negotiations, Cambodian law firms lobbied to introduce a 49 percent equity limitation on The NAC has been active in promoting the regulatory foreign firms, and restrictions on the form of framework and the use of international standards. commercial arrangement (WTO, 2011). These efforts The KICPAA focuses on the registration of were ultimately unsuccessful and the commitment accounting professionals and capacity building allows for great flexibility for foreign firms to in the sector. In 2007 the Ministry of Economy and engage in partnerships with Cambodian firms. Finance issued a prakas on the implementation of the Cambodian International Audit and Assurance The Cambodian Bar Association has not supported Standards, which are to fully meet all international the implementation of this obligation by denying auditing and assurance standards published by foreign lawyers the ability to register in Cambodia. the International Auditing and Assurance Standards In fact, it is reported that the Association has Board, including amendments to each standard. pressed criminal charges against a number of foreign practitioners for illegally practicing law. Covered standards include quality control, The lack of a clear framework for the provision of auditing, review engagement, assurance engage- legal services by foreign practitioners in Cambodia ment, and related services. reduces transparency and may bring into question Cambodia’s compliance with its WTO commitments The KICPAA has engaged actively in the develop- on services trade. ment of accountancy skills in Cambodia. A major project includes partnerships with Cambodian universities to produce skilled professional acc- Tourism ountants and auditors familiar with international During the mid-1990s, tourism, along with textiles, accounting and auditing standards, and to build a emerged as one of Cambodia’s leading industries. licensure program for the certification of account- It has been a driving force behind the country’s ants. The KICPAA has also participated in projects growth during the past decade. organized by the World Bank and the Ministry of Fi- nance on issues such as quality assurance and pub- In 2011, 2.8 million tourists visited Cambodia, lic sector accounting standards (KICPAA, 2011). contributing more than 15 percent of GDP and making tourism an important source of foreign This open and dynamic framework has resulted in exchange (Table 3.3). It is estimated that the the establishment of at least seven foreign accoun- sector creates direct and indirect employment ting firms in Cambodia, including three of the ’Big opportunities for 300,000 people (WTO, 2011). The Four’ international companies. Although some tourism boom attracted more than US$11 billion companies are increasingly engaging Cambodian in foreign investment between 2001 and 2008, employees, most of their professional and accounting for more than 55 percent of total managerial staff are still expatriates. Their services foreign direct investment in Cambodia over this cater largely to subsidiaries of foreign firms in period (CDC, 2011). Although efforts are being made Cambodia, joint ventures, and some state-owned to diversify Cambodia’s tourism sector, especially enterprises (KICPAA, 2011). A majority of members into the coastal area and inland ecotourism of the accountancy body hold foreign qualifications, destinations, the Angkor historical temples complex facilitated by the fact that there are currently in the province of Siam Reap, a UNESCO World no domestic examination requirements to maintain Heritage Site, remains the country’s primary membership (Seng, 2009). tourist attraction. Cambodia Services Trade 34 Performance and Regulator y Framework Assessment Policies and the Regulator y Framework for Ser vices With the view to attracting foreign investment to the tourists’ language is not available, the guide must further develop the sector, Cambodia commit- be accompanied by a Cambodian. ted to an open framework for tourism services in the context of its WTO accession. It introduced In an attempt to promote the development of the sector, no restrictions under the GATS, except that the the RGC has passed a Law on Tourism and a number of establishment of one- and two-star hotels is to be regulatory prakas mandated by it. The Ministry of reserved for Cambodian citizens and companies. Tourism website provides access to all such instruments, Although, under the GATS, Cambodia may restrict in Khmer and an unofficial English translation. The foreign ownership of travel agencies to 51 percent, ministry is in charge of policy development through no such restriction applies in practice. Tour operators the implementation of the law, and administration of remain equally open. Conversely, although no the tourism business. It requires all providers of tourism restrictions were introduced on tourist guide services, including hotels and resorts, restaurants, services, Cambodia requires that tour guides be night-clubs, providers of transport services, and others, Cambodian citizens. When a Cambodian who speaks to obtain a license, which can be obtained online. Table 3.3 Tourism in Cambodia, 2000–2011 Indicator 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Number of visitors (thousands) 466 605 787 701 1,055 1,422 1,700 2,015 2,125 2,165 2,508 2,882 Revenues (millions of dollars) 228 304 379 347 578 832 1,049 1,400 1,595 1,561 1,786 1,912 Length of stay 5.50 5.50 5.80 5.50 6.30 6.30 6.50 6.50 6.65 6.45 6.45 6.50 (days) Hotel occupancy (percent) 45.0 48.0 50.0 50.0 52.0 52.0 55.0 55.0 63.0 63.0 65.7 66.2 Average expendi- ture per tourist 489 502 482 495 548.8 585 617 695 750 721 712 663 (dollars) Source: Ministry of Tourism. Not with standing these advances, business providers interested in benefitting from the looser operators report that the sector remains under- regulatory and enforcement conditions. Although regulated and administration remains opaque. the number of visitor increased between 2007 and Prakas and sarachor (ministerial directives) are 2011, average per capita expenditure fell, from vague declarations of intentions that provide only US$750 to about $660, sugesting that Cambodia partial or ambiguous descriptions of requirements. is increasingly attracting low-budget tourists. Regulations often reproduce the objectives of the An adequate regulatory framework and effective main law, adding little in the way of specific require- enforcement would not only ensure quality and ments or conditions. Moreover, when requirements safety for backpackers and other low-budget do exist, they are often disregarded because of lack tourists, it would also promote the establishment of adequate enforcement. of world-class services providers who can develop These deficiencies risk limiting the development high-end services and increase per capita tourist of the tourism sector by introducing a bias toward expenditure. Cambodia Services Trade Performance and Regulator y Framework Assessment 35 Conclusion: Main Findings and Policy Implications Cambodia’s experience over the past two decades that they do so requires strong initiatives to develop confirms the relevance of service industries and the human resources and infrastructure needed to their impact on economic growth. Benefitting from support higher value-added services, in addition to Cambodia’s rich cultural heritage, the tourism better technical capacity and greater transparency industry has led the way to high economic growth in the governance and regulatory framework. rates, based on exports and the attraction of foreign investment. Along with textile exports, tourism Investing in Human Capital has helped jump-start Cambodia’s development into an open and dynamic economy. Cambodia’s young population - recognized inter- nationally as dynamic, enthusiastic, and capable - Cambodia’s factor endowments suggest the provides enormous potential for the development country is well suited for the export of services. of modern services industries. Reaping these Such exports are already growing more rapidly than benefits requires both improving domestic skills traditional ones, including tourism. Cambodian and addressing skills mismatches. A recent firms of both foreign and domestic origin are already World Bank report, Matching Aspirations: Skills for tentatively exporting some high-value-added niche Implementing Cambodia’s Growth Strategy, provides services, such as computer-based animation. a set of concrete recommendations including Given the right environment, exports of modern expanding financing for early childhood development, services, including IT-related services, could play strengthening institutional development, and an increasingly important role as a source of promoting incentives for skills providers, including employment, revenue, and investment. Ensuring higher education institutions (Table 4.1). Table 4.1 Skill up-grading in Cambodia Objectives Skills supply Laying the foundation for the future 1. Information Access •Enhance employment Enhance the NEA’s capacity and • counseling and job partnership with the private sector search services • Use media to show study and career opportunities  overage in the 2. C •Mainstream good Strengthen the capacity of the NTB to deliver • “missing middle” TVET programs employer-focused reform of education and training Consider ways to encourage employers to invest • in training their workforce Quality and market 3.  Begin upgrading a small • Reform secondary curriculum to improve the teaching • relevance number of skills providers, of science, math, engineering and other technical including non-formal training disciplines, entrepreneur ship and soft skills centers, in collaboration •Strengthening accountability of communities with local industries and schools as part of the D&D process 4. Financing efficiency Expanding household-oriented • Increase expenditure on cost-effective • financing instruments for interventions early in the life-cycle school retention Explore different financing schools to promote • incentives towards good results among skills providers, including higher education institutions. Source: World Bank (2012). Cambodia Services Trade 36 Performance and Regulator y Framework Assessment Conclusion: Main Findings and Policy Implications In addition to traditioal education programs, Cambodia accessible only in selected locations, and at should consider developing technical education prohibitive costs for the overwhelming majority programs in coordination with the relevant services of the population. As a result, Cambodia’s broadband industries, in order to provide a market-ready, skilled connectivity is the second lowest in the region employment base. A number of countries have after Myanmar. Widespread access to broadband established partnerships between the public and internet connections is not only necessary for the private sectors, in order to identify areas of skills services industry, it is also essential for the shortage and to develop industry-specific training development of capacity, especially IT skills, in a programs, in particular for the services sector. country with a population as small as Cambodia’s. Examples of programs in this field include: The deficient institutional and regulatory frame- improvement and public dissemination of work for the telecom sector remains the main statistical data on labor markets to be used hurdle to the sector’s development. The current by policy-makers and private stake holders efforts towards adopting a modern law on (Tajikistan); telecommunications, in line with internationally establishment of sector-specific training bodies, accepted principles of telecom regulation, and linked to industry associations and other Cambodia’s WTO obligations, should be reinforced. organizations, to estimate labor demand on More general improvements on transparency and a sectoral basis and provide advice to the regulatory procedures are also needed. government on priority training and programs to be developed (multiple European countries) Empirical evidence suggests that broadband is a (European Training Fund, 2010); major contributor to economic growth. Specific policies targeted toward the development of the establishment of seat allocation targets telecom sector may also be introduced in for public universities on specific areas of Cambodia. In addition to the establishment of an knowledge, based on an estimated increase adequate regulatory environment for the sector, a in market demand (Singapore); and number of countries have designed broadband publication of labor market forecast reports strategies to foster development. Alternatives based on census data and industry trends to range from opening the sector to wider competition, better inform policymakers, educational streamlining regulation—including the elimination institutions and private companies on the of licensing requirements for certain broadband allocation of educational resources (Canada). services (as done by Thailand)—to the establishment of public-private partnerships in the development In addition, Cambodia should maintain its open of backbone infrastructure, as promoted by Kenya policy for the employment of foreigners, particularly (World Bank, 2012c). Cambodia is taking the first high skilled workers, in order to provide an attractive investment environment and facilitate the transfer steps in that direction by promoting cooperation of knowledge. with international bodies aimed at adopting a broadband strategy for the country. Enhancing Infrastructure Improving Governance and The expansion of services industries will require Regulation the enhancement of infrastructure, in particular broadband telecommunications. Mobile telephony, In Cambodia, weak governance and regulation although still below regional standards, has boomed, represents one of the main hurdles to the development greatly increasing connectivity across the country. of an efficient services sector and, more broadly, Internet penetration, especially broadband a modern economy. Despite some improvement in communications services, has progressed only recent years, a lack of transparency and predictability minimally in recent years. Broadband service is still weighs heavily on allservices industries. Cambodia Services Trade Performance and Regulator y Framework Assessment 37 Conclusion: Main Findings and Policy Implications For example, lack of transparency in the transport ministerial directives affecting trade and sector is leading to a significant increase in transport investment in services. The gazette should be costs by creating an environment in which informal issued at least weekly, in electronic and hard payments are frequent. In the tourism sector, copy form. establishing a more developed regulatory environment, setting up adequate safety and quality standards, Establish annual ministry-specific regulatory and ensuring equitable enforcement would programs. These plans would outline the create better conditions for the expansion of problems to be tackled through regulation and high-end tourism services, reversing Cambodia’s the desired objectives of new regulations. Public current trend toward low-cost tourism. In disclosure of the regulatory program (through professional services, deficiencies in the regulatory the official gazette or other means) would allow framework may run counter to Cambodia’s WTO other ministries and regulatory agencies, as commitments. In contrast, the adoption of inter- well as the private sector, to issue comments national standards and effective regulatory bodies or express their views. in accounting are proving effective in modernizing Adopt a regulatory policy or policy guidelines that sector. that set out the procedures to be followed in the Cambodia’s ultimate development goal— law-and regulation-making process. These establishing a modern services-based economy, regulatory guidelines would be aligned with with sustained growth and greater social principles of good regulation, including transpa- inclusion—will not be achieved quickly. To realize rency, public consultations, interagency coordination, its goal, policymakers must continue to create an and regulatory efficiency. Such a policy should: open, investment-friendly, and sound regulatory environment for the services sector.  provide for public disclosure of legal and regulatory drafts, including the policy ob jectives The Government has already adopted many good they pursue, and how they relate to international regulatory practices. It has established a solid obligations and national development plans; public- private consultation mechanism, which has led to better-informed regulation and significantly  indicate the time frames and procedures for improved technical capacity in the regulatory the private sector to provide comments on the bodies. Individual ministries have taken steps to proposed regulation, with and beyond G-PSF improve transparency and access to regulation consultations (perhaps including private sector by making relevant laws and prakas available consultations in the Pillar Working Groups online. And some ministries have established of the Trade SWAp), and the procedures for inter-agency coordination mechanisms to improve agencies on how to process such inputs; the regulatory process. The challenge is to establish  indicate the timeframes and procedures for clear procedural guidelines to institutionalize receiving comments and observations from these procedures and create more transparent and other governmental agencies, including the better-informed decision-making procedures—by, ability to bring a matter to an overseeing for example, making all laws and regulations on authority if proposed measures conflict with trade and investment publicly available in a central existing laws or policies; legal and regulatory collection.  identify the agency in charge of conducting Adopting Horizontal Measures a regulatory assessment and how it would be integrated in the standard regulatory Several initial steps would help create an enabling procedures; and regulatory framework for the services sector.  identify the overseeing body in charge of Ensure the official legal gazette or journal ensuring the observance of the regulatory publishes all laws, sub-decrees, prakas, and policy and of guiding the process, as well as Cambodia Services Trade 38 Performance and Regulator y Framework Assessment Conclusion: Main Findings and Policy Implications the internal agencies within each ministry to Current initiatives may allow for the piloting of some administer the regulatory procedures, such of the suggested measures. Pilots could allow for as the ministries’ legal departments. a test of the procedure under current regulatory conditions, and establish an agency that could Create a comprehensive collection of laws and later lead the expansion of the system to the rest regulations for the services sector in order to of the administration. The ministries and agencies inform the rule-making process, enhance most relevant to the regulation of trade and transparency, and provide for a more predictable investment in services—namely, the Ministry of regulatory framework. Such a collection would Commerce, the Ministry of Economy and Finance, also help Cambodia engage further in regional the Ministry of Tourism, the Council for the integration discussions, and discussions with Development of Cambodia, and the future telecom partners outside the region, as it would provide regulation body—would be suitable candidates. a complete picture of measures relevant to international trade negotiations. Valuable opportunities lie ahead for Cambodia in the services industries, by both expanding current In addition to horizontal initiatives, greater sector- services exports and developing new high-value- specific work is necessary to improve regulatory added niche services. With appropriate policies conditions on priority services. Initial sectoral work that build on the good governance and regulatory would likely entail improving the understanding of reforms already started, Cambodia can increase the specific market conditions and regulations, and diversify foreign investment toward other for example, by conducting a sectoral regulatory services industries beyond tourism. assessment. Cambodia Services Trade Performance and Regulator y Framework Assessment 39 References Barro, Robert, and J. Lee. 1994. “Sources of Economic Growth.” Carnegie-Rochester Conference Series on Public Policy 40: 1–46. BNG Legal, 2010, Guide to Business in Cambodia 2010, Phnom Penh, February 2010. Borchert, Ingo, G. Batshur, and A. Mattoo. 2011. “Policy Barriers to International Trade in Services: New Empirical Evidence.” World Bank, Washington, DC. Borchert, Ingo, G. Batshur, and A. Mattoo. 2012. “Guide to the Services Trade Restrictions Database. ” World Bank Policy Research Working Paper. Forthcoming. World Bank, Washington, DC. Council for the Development of Cambodia (CDC). 2010. Cambodia Investment Guidebook. Phnom Penh. DFDL Mekong. 2011. Cambodia Legal, Tax and Investment Guide. DFDK Mekong. Phnom Penh. Doove, Samantha, O. Gaabbitas, D. Nguyen-Hong, and J. Owen. 2001. “Price Effects of Regulation: Telecommunications, Air Passenger Transport and Electricity Supply.” Productivity Commission Staff Research Paper, October, AusInfo, Canberra. Eschenbach, Felix, and B. Hoekman. 2006. “Service Policy Reform and Economic Growth in Transition Economies, 1990–2004.” CEPR Discussion Paper 5625, Center for Economic Policy Research, Washington, DC. European Training Fund.“LabourMarket Needs and Employability“, http://www.etf.europa.eu/web.nsf/pages/ Employment_EN?OpenDocument, 2010. Feketekuty, Geza. 2000. Regulatory Reform and Trade Liberalization in Services. In Sauvé, P. and R.M. Stern (eds), GATS 2000: New Directions in Services Trade Liberalization. The Brookings Institution. Washington, DC. Fink, Carsten and M. Molinuevo. 2007. East Asian Free Trade Agreements in Services: Roaring Tigers or Timid Pandas?, Washington D.C.: World Bank Policy Research Paper. Washington, DC Francois, Joseph., and B. Hoekman. 2010. “Services Trade and Policy.” Journal of Economic Literature 48: 642–92. Ghani, Ejaz, and H. Kharas. 2010. “Overview of the Service Revolution in South Asia.” In The Service Revolution in South Asia, ed. EjazGhani.Oxford and New York.Oxford University Press. Ghani, Ejaz, ed. The Service Revolution in South Asia. Oxford and New York. Oxford University Press. Goswami, Arti Grover, Aaditya Mattoo, and Sebastian Saez. 2011. “Exporting Services: A Developing Country Perspective.” World Bank, Washington, DC. Grünfeld and Moxnes 2003Gwartney, James, Joshua Hall, and Robert Lawson. 2010. Economic Freedom of the World: 2010, Fraser Institute, Canada. Hardin, A., and L. Holmes. 1997. Services Trade and Foreign Direct Investment. Staff Research Paper, Industry Commission, Australian Government Publishing Services, Canberra. Cambodia Services Trade 40 Performance and Regulator y Framework Assessment Hausmann, Ricardo, J. Hwang, and D. Rodrik. 2007. “What You Export Matters.” Journal of Economic Growth 12 (1) 1–25. Hoekman, Bernard. 1996. “Assessing the General Agreement on Trade in Services.” In The Uruguay Round and the Developing Countries, ed. W. Martin and L. A. Winters. New York: Cambridge University Press. Hollweg, Claire and Wong, M-H. 2009. Measuring Regulatory Restrictions in Logistics Services. ERIA Discussion Papers. Adelaide. IFC. Investing Across Borders 2010.The World Bank Group. Washington, DC. IMF. 2011. Balance of Payments Yearbook, 2011. Washington, DC: IMF. KICPAA. 2011. Accounting Action Plan 2011. Phnom Penh. Kim, Yongsoo, Tim Kelly, and Siddhartha Raja. 2010. Building broadband: Strategies and policies for the developing world. World Bank: Washington DC. Kirkpatrick, Colin and Zhang, Y-F. 2004. Regulatory Impact Assessment in Development and Transition Economies: a Survey of Current Practice. Centre on Regulation and Competition Working Paper Series. Manchester. Kunaka, Charles and D. Saslavsky. 2012. Cambodia Trade Corridor Performance Assessment. Forthcoming. Lall, Sanjaya., J. Weiss, and J. Zhang. 2005. “The ‘Sophistication’ of Exports: A New Measure of Product Characteristics.” Queen Elizabeth House Working Paper 123, Oxford University, Oxford. Lennon, Carolina. 2006. Trade in Services and Trade in Goods: Differences and Complementarities.” Paper presented at the 8th Annual Conference of the European Trade Study Group, Vienna, September 7-9. Nicoletti, Giuseppe, S. Scarpetta, and O. Boylaud. 2000. “Summary Indicators of Product Market Regula- tion with an Extension to Employment Protection Legislation.” Working Paper 226, revised, OECD, ECO/ WKP(99)18. OECD: Paris. OECD.2005a. APEC-OECD Integrated Checklist on Regulatory Reform. Paris: OECD. OECD. 2005b. Regulatory Impact Analysis in OECD Countries Challenges for developing countries1. Paris: OECD. PECC (Pacific Economic Cooperation Council). 1995. Survey of Impediments to Trade and Investment in the APEC Region. Singapore. Pohl Consulting & Assoc. 2011.Regulatory Impact Assessment Inception Report. Saing, Chan Hang, and DalisPhann. 2010. Service Trade Liberalisation and Growth in Cambodia: case of Finance and Telecom Sectors, in Hossein Jalilian, Annual Development Review 2009-10. CDRI. Phnom Penh. Seng, Dyna. 2009. Accounting Education in Cambodia. International journal of Accounting Research, 2009., volume 4, issue 2. Sisombat, Lili. 2009. Exit with Success. Presentation made at the Global Public-Private Dialogue Workshop. Vienna, 26 April 2009. Steiner, Faye. 2000. “Regulation, Industry Structure and Performance in the Electricity Supply Industry.” Working Paper OECD ECO/WKP 238. Paris: OECD. Cambodia Services Trade Performance and Regulator y Framework Assessment 41 Stern, Robert M. 2002. “Quantifying Barriers to Trade in Services.” In Development, Trade, and the WTO: A Handbook, ed. B. Hoekman, A. Mattoo, and P. English. Washington, DC: World Bank. Sudan, Randee, S. Ayers, P. Dongier, A. Muente-Kunigami, and C. Zhen-Wei Qiang. 2010 . The Global Opportunity in IT-Based Services: Assessing and Enhancing Country Competitiveness. Washington, DC: World Bank. Trewin, Ray. 2000. “A Price-Impact Measure of Impediments to Trade in Telecommunications Services.” In Impediments to Trade in Services: Measurement and Policy Implications, ed. C. Findlay and T. Warren. London: Routledge. Triplett, Jack, and Barry Bosworth. 2004. Services Productivity in the United States: New Sources of Economic Growth. Washington, DC: Brookings Institution Press. UNCTAD (United Nations Conference on Trade and Development). 1996. World Investment Report 1996: Investment, Trade and International Policy Arrangements. New York and Geneva: UNCTAD. Van der Marel, Erik (2012) Trade in services and TFP: the role of regulation. World economy, 35 (11). pp. 1530-1558. World Bank. 2009. Review of World Bank Group Support to Structured Public-Private Dialogue for Private and Financial Sector Development. Washington, DC: World Bank. World Bank . 2010. Information and Communication Technology for Development. Washington, DC: World Bank. 2010. World Bank. 2011. Doing Business. Washington, DC: World Bank. World Bank. 2012. World Governance Indicators. World Bank. 2012a. World Development Indicators. Washington, DC: World Bank Group. World Bank. 2012b. Logistics Performance Indicators. Washington, DC: World Bank Group. World Bank. 2012c. Broadband Strategies Handbook. Washington, DC: World Bank Group. World Bank. 2012d. Matching Aspirations: Skills for Implementing Cambodia’s Growth Strategy. Washington, DC: World Bank Group. WTO.2009. International Trade Statistics 2009. Geneva: WTO. WTO. 2011. Trade Policy Review Cambodia. Geneva: WTO. Cambodia Services Trade 42 Performance and Regulator y Framework Assessment Appendix A: The Services Trade Restrictiveness Index This report draws on the database on regulations in the services sector collected by an ongoing research project conducted by the World Bank’s Development Research Group. The project aims to quantify the restrictiveness impact of regulatory measures by creating a Services Trade Restrictiveness Index. The database covers 103 countries from all regions and income groups. For each country, 5 services sectors are covered that encompass 18 sub-sectors: Financial services: Retail banking (lending and deposit taking) and insurance (automobile, life, and reinsurance) Telecommunications: Fixed-line and mobile Retail distribution Transportation: Air passenger, maritime shipping, maritime auxiliary, road trucking, and railway freight Professional services: Accounting, auditing, and legal services (advice on foreign/international law, on domestic law, and court representation) Within each subsector, the most relevant modes of supplying the respective services are covered: Mode 1: Financial services, transportation, and professional services Mode 3: All sub-sectors Mode 4: Professional services To obtain original information about services trade policies, the World Bank conducted surveys in 79 developing countries. The surveys were administered by local law offices with expertise in local investment laws, regulations, and the practical experience of working in these sectors. The survey questions were based on information on relevant legislation in each country, augmented with information on implementation of regulatory measures as applicable. For OECD countries, comparable policy information was collected from various publicly available sources, including countries’ GATS commitments and offers, WTO reports, and Economic Intelligence Unit reports, among others. For all countries, information on cross-border air transport policies comes from the WTO’s QUASAR database. The accuracy of all policy information was checked with national governments and ministry officials. The information presented in the database reflects government feedback, if any, in cases in which the feedback deviated from the survey information. Restrictions on services trade can be measured in several ways. One way is to represent the restrictiveness in a single index measure, a Services Trade Restrictiveness Index (STRI). This measure of openness is simple and transparent. Compared with indexes based on fixed scores and weights, it avoids problems such as the double-counting of non-binding restrictions. Compared with measures that infer restrictiveness through the Cambodia Services Trade Performance and Regulator y Framework Assessment 43 impact of measures on some outcome, this measure is not dependent on the availability of data on sector performance. Within each sub-sector-mode, policy regimes can be divided into five broad categories (with associated scores): Completely open (0) Virtually open but with minor restrictions (25) Major restrictions (50) Virtually closed with limited opportunities to enter and operate (75) Completely closed (100). Scores can be aggregated into sector, mode, or regional indexes using the following types of weights: Modal weights: Sector-specific weights reflecting expert judgment as to the relative importance of alternative modes of supplying a specific service. Sector weights: Weights derived from the average share of a given services sector in value added for an average industrial country. Sector weights are constant across countries to ensure comparability. Country weights: Equal weights within a region. Equal weights prevent a regional average score from becoming dominated by one very large economy (such as China or India), as would happen with a GDP–based weight, for instance. Cambodia Services Trade 44 Performance and Regulator y Framework Assessment Appendix B: Definitions of Commercial Services Sectors Commercial services in defined as transportation services, travel, and other commercial services. Services, excluding government services (supplied or acquired by embassies, military bases, and international organizations, etcetera). Transportation services covers sea, air and others including land, internal waterway, space and pipeline transport services that are performed by residents of one economy for those of another, and that involve the carriage of passengers, the movement of goods (freight), rentals (charters) of carriers with crew, and related supporting and auxiliary services. Travel includes goods and services acquired by personal travelers, for health, education or other purposes, and by business travelers. Unlike other services, travel is not a specific type of service, but an assortment of goods and services consumed by travelers. The most common goods and services covered are lodging, food and beverages, entertainment and transportation (within the economy visited), gifts and souvenirs. Other commercial services corresponds to: (i) communications services includes telecommunications, postal and courier services(*). Telecommunications services encompasses the transmission of sound, images or other information by telephone, telex, telegram, radio and television cable and broadcasting, satellite, electronic mail, facsimile services etc., including business network services, teleconferencing and support services. It does not include the value of the information transported. Also included are cellular telephone services, Internet backbone services and on-line access services, including provision of access to the Internet; (ii) construction covers work performed on construction projects and installation by employees of an enterprise in locations outside the territory of the enterprise (the one-year rule to determine residency is to be applied flexibly). In addition goods used by construction companies for their projects are included which implies that the “true” services component tends to be overestimated; (iii) insurance services covers the provision of various types of insurance to non-residents by resident insurance enterprises, and vice versa, for example, freight insurance, direct insurance (e.g. life) and reinsurance; (iv) financial services covers financial intermediation and auxiliary services provided by banks, stock exchanges, factoring enterprises, credit card enterprises, and other enterprises; (v) computer and information services is subdivided into computer services (hardware and software related services and data processing services), news agency services (provision of news, photographs, and feature articles to the media), and other information provision services (database services and web search portals); Cambodia Services Trade Performance and Regulator y Framework Assessment 45 (vi) royalties and license fees, covering payments and receipts for the use of intangible non- financial assets and proprietary rights, such as patents, copyrights, trademarks, industrial processes, and franchises; (vii) other business services, comprising trade-related services, operational leasing (rentals), and miscellaneous business, professional and technical services such as legal, accounting, management consulting, public relations services, advertising, market research and public opinion polling, research and development services, architectural, engineering, and other technical services, agricultural, mining and on-site processing; and (viii) personal, cultural, and recreational services is subdivided into two categories, (i) audiovisual services and (ii) other cultural and recreational services. The first component includes services and fees related to the production of motion pictures, radio and television programs, and musical recordings. Other personal, cultural, and recreational services includes services such as those associated with museums, libraries, archives, and other cultural, sporting, and recreational activities. Also included are, education services relating to education, such as correspondence courses and education via television or the Internet, as well as by teachers etc. Health services comprise services provided by doctors, nurses and paramedical and similar personnel, as well as laboratory and similar services, whether rendered remotely or on-site. Excluded is all expenditure by travelers on education and health (included in travel).(*) Note: in the Sixth Edition of the IMF’s Balance of Payments and International Investment Position Manual, postal and courier services are included under transportation services. Sources: Goswani, Mattoo and Saez, 2011 Cambodia Services Trade 46 Performance and Regulator y Framework Assessment Cambodia Services Trade 48 Performance and Regulator y Framework Assessment